Poor Returns Biggest Reason for NYC Pension Cost Increase

April 7, 2011 (PLANSPONSOR.com) – A study launched by New York City Comptroller John Liu found a $6.5 billion increase in New York City’s pension costs was largely due to poor market performance.

The study report, “The $8 Billion Question: An Analysis of NYC Pension Costs Over the Past Decade,” validated by independent actuaries, said poor returns were by far the largest contributing factor to the increase, adding $3.1 billion in additional costs in FY 2010, and $15.2 billion over the decade, according to Global Pensions.   

The news report said the study found the next largest factor was actuarial losses and revisions in actuarial assumptions and methods, due to a variety of factors including increased longevity, salaries, overtime, disability, early retirement, and buy-backs of service. It added $790 million in FY 2010, and totalled nearly $1.7 billion, or 5%, over the ten year period.  

The final major factor was higher than expected investment and administrative fees, which added $313 million to expenses in FY 2010, and totaled $982 million, or 3%, during the decade.  

“The data challenges widespread notions that overly generous benefits played the leading role in the escalation of City contributions,” deputy comptroller for budget and accountancy Simcha Felder said, according to Global Pensions. “In fact, the study found that the major factor in the rise in employer contributions to the city’s pension funds has been poor market performance. The lower than expected investment returns accounted for 48% of the cost increase.”  

The current asset value of the New York City Pension Funds is $114.9bn, which indicates a 17% percent rate of return fiscal year to date (July 1, 2010 – January 31, 2011), according to the news report.