State and local governments in New York will have to pay higher contributions into the state pension fund after four consecutive years of declines, Comptroller Thomas DiNapoli announced yesterday.
The rates paid by government employers, a percentage of employee payroll, will rise in 2011 to 11.9% from 7.4% in 2010 for the Employees’ Retirement System and to 18.2% from 15.1% for the Police and Fire Retirement System.
“While the pension fund has handled the market collapse better than most other public funds, there is no question that it’s been hit by the crumbling economy,” DiNapoli said in a press release.
A year ago, the comptroller lowered rates for 2010 over the previous year because the $153.9 billion Common Retirement Fund had posted a 2.56% return in fiscal 2008. Today the fund is down to $116.5 billion, having posted a negative 26.3% return over fiscal 2009.
Annual contributions are calculated using an actuarial formula that considers factors like the funds’ returns, the number of people retiring, and retiree deaths. Contributions for the Employees’ Retirement System were below 5% from 1989 through 2003, then shot up.
DiNapoli has proposed allowing employers to amortize the increase over several years to lessen the impact of the increased burden.
Steven Acquario, executive director of the New York State Association of Counties, said the new contribution rates did not come as a surprise and would be worked into counties’ 2010 budgets which are being prepared now. The 2011 pension contributions will be collected in 2010.
“How we actually manage to get our arms around it will be a challenge,” he said. “We feel we’re being squeezed by all sides.”
The increased rates come at a time when counties are dealing with falling sales tax receipts, declining property values and slower than usual reimbursements, Acquario said.
“Its definitely a confluence of pressures coming together in 2011,” said Moody’s Investors Service analyst Lisa Cole.
She said that while the increase was expected its timing was “unfortunate” because increased federal Medicaid funding under the federal stimulus act goes away after 2010.
If next year looks tough, counties are more concerned about the future, Acquario said.
“All eyes remain on 2012,” he said. “Should the economy not turn and pivot into a new direction, a better direction, we’re bracing for payroll costs to reach as high as 25% of payroll.”
This year the state’s 57 counties excluding, New York City, will pay a combined $337.3 million into the state pension system. If current trends continue, by 2012 the counties could be required to pay more than $1 billion which he said would be “unmanageable,” according to Acquario,
“It’s staggering,” he said.
According to the state Division of Budget, preliminary estimates from the comptroller’s office show state contributions to the Employees’ Retirement System rising to 30.3% of payroll and to 41.1% for the Police and Fire Retirement System by fiscal 2015. If those projections come to pass, the state’s contribution would rise from $1.32 billion in fiscal 2011 to $3.86 billion in fiscal 2015.
“That is just one scenario,” said DiNapoli spokeswoman Emily DeSantis. “But it’s hard to predict with any accuracy what it will be in future years because the biggest unknown is what the performance of the fund will be and that’s the biggest determination of what goes into it.”
Gov. David Paterson said that the new pension rates gave new impetus to his proposal to create a new pension category, Tier V, for new government employees that would offer less generous benefits and save the state an estimated $50 billion over 30 years.
“Today’s announcement concerning new pension contribution rates will mean significantly increased costs for our state and local governments, particularly local property taxpayers,” Paterson said in a press release. “These findings underscore the need for significant, long-term pension reform.”
Acquario said that while the new pension tier was essential for the long term, it would not offer much short-term relief.