New York Cuts Investment Return Assumptions to 6.8%

DiNapoli  says a ‘more conservative approach’ needed for lower return environment.

In anticipation of a lower return investment environment, New York is lowering the long-term assumed rate of return on investments for the New York State and Local Retirement System (NYSLRS) to 6.8% from 7%.

New York State Comptroller Thomas DiNapoli made the announcement along with the release of the state’s annual report on actuarial assumptions.

“The long-term outlook for investors is changing and requires a more conservative approach,” DiNapoli said in a statement. “As in years past, we’re taking the responsible action of lowering our assumed rate of return now so we can better weather market volatility.”

The state pension fund’s average rate of return over the past three, five, 10, 20, and 30 years are 9.32%, 7.00%, 10.34%, 6.64%, and 8.94%, respectively.

DiNapoli also said that the NYSLRS employer contribution rates for fiscal year 2020-2021 will remain the same as the previous year for the Employees’ Retirement System (ERS), and that there will be a “small increase” in rates for the Police and Fire Retirement System (PFRS). NYSLRS is made up of these two systems.

The estimated average employer contribution rate for ERS will remain at 14.6% of payroll, and the estimated average employer contribution rate for PFRS will increase to 24.4% from 23.5% of payroll.  Employer rates for NYSLRS are based on investment performance and actuarial assumptions recommended by the Retirement System’s Actuary and approved by DiNapoli.

“Each year, for the past seven years, we’ve been able to lower pension contribution rates or essentially keep them flat,” DiNapoli said. “Through solid investment returns, prudent management and a diverse portfolio we have kept the state pension fund strong and one of the best funded in the nation.”

It is the third time DiNapoli has lowered the state pension fund’s assumed rate of return. He previously lowered the assumed rate of return to 7.5% from 8.0% in 2010, and again in 2015 to 7.0% from 7.5%. According to the National Association of State Retirement Administrators the median assumed rate of return among state public pension funds is 7.25% as of February, and only 16 public funds currently have return assumptions of below 7%.

The funded ratio of the state pension fund was 96.1% at the end of fiscal 2019, down from 98.0% at the end of fiscal 2018. DiNapoli cited a June report from the Pew Charitable Trusts that ranked the state’s pension fund as one of the best funded among public pension plans. He said that only eight states had a funded ratio of 90% or higher based on 2017 data, with New York ranked behind only Wisconsin, South Dakota and Tennessee.

The retirement system also lowered its cost of living adjustments (COLA) to its minimum of 1.0%, which will be applied this month, and which is 0.3% less than the current assumption. The COLA program provides payments equal to one half of the inflation rate based on the first $18,000 of the single life allowance. There is a floor of 1% and a cap of 3% on COLA adjustments.

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