New York City will lower its assumed rate of return on its pension funds, which will increase the amount the city contributes, Comptroller John Liu said Thursday.
“It’s fair to say that that assumption will be lowered at some point,” Liu said after delivering a speech at the Municipal Forum of New York luncheon in Manhattan. “The city has maintained its 8% assumed rate of return for a long time but I know that there are efforts to reexamine that assumption.”
Liu did not say when the assumed rate of return would be lowered or by what percentage. In September, state Comptroller Thomas DiNapoli lowered the assumed annual rate of return to 7.5% from 8% on state pension funds, which in turn increased the contribution government employers in those funds must pay. Earlier this week, New York’s Metropolitan Transportation Authority followed suit, which resulted in larger projected out-year budget gaps.
Lowering the assumed rate of return would increase pressure on the city’s budget at a time when it is already trying to deal with current-year and out-year budget deficits.
“A downward change in the assumption obviously will increase liabilities and pension costs,” Liu said. Liu said that he has had conversations with the city’s actuary about what the assumed rate of return should be.
“He is looking at our asset allocation mix, using the building block approach to determine what is a reasonable rate of return assumption based on experience,” Liu said of the actuary.
The city comptroller serves as custodian to the city’s five pension funds, which were valued at $100.48 billion as of Aug. 31, according to the comptroller’s website. Like other major pension funds, the city funds took a beating during the recession, falling in value to $91.5 billion at the end of fiscal 2009 from $116.64 billion at the end of fiscal 2008. The funds serve more than 237,000 retirees and beneficiaries and more than 344,000 city and city affiliated employees.
The city’s updated November financial plan assumes that its pension contributions will increase to $8.35 billion in fiscal 2012 from $7.01 billion in the current fiscal year. The city’s operating expenditures are projected to total $64.58 billion in fiscal 2011.
Mayor Michael Bloomberg announced Thursday that the city needed to lay off 6,201 employees in the current and next fiscal years as part of a plan to cut $1.59 billion in spending.
Bloomberg said headcount reductions and other cuts would reduce the projected fiscal 2012 budget deficit by $900 million to $2.4 billion.