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DiNapoli: State pension fund value drops $16B because of virus

ComptrollerThomas DiNapoli in New Hyde Park on Jan.

ComptrollerThomas DiNapoli in New Hyde Park on Jan. 6, 2019. Credit: Jeff Bachner

ALBANY — The COVID-19 virus and the economic shutdown it forced reduced the state pension fund for public workers by $16.2 billion to $194.2 billion and will likely force greater employer contributions by state and local governments, according to a report by state Comptroller Thomas DiNapoli.

For taxpayers, a significant drop in the fund’s value usually means that local and state government employers must make a greater contribution to the fund, which has in the past forced property tax increases. DiNapoli, however, termed the 2.68% drop in the return on investment as slight, despite the pandemic’s impact on investments worldwide.

“There will likely be an increase in the contribution rate,” DiNapoli said on public radio’s “Capitol Pressroom. “I can’t tell you how much … [but] I don’t think you will see the kind of spike we saw 10 years ago.” That spike, the beginning of the recession, was more than 20%.

DiNapoli said that over the next two weeks his staff will determine that contribution increase by including salary rates, mortality rates and the trend of how many workers are retiring.

DiNapoli, the sole trustee of the pension fund, said Wall Street’s boom before COVID-19 hit and its continuing recovery has helped the state recoup much of its losses during the early months of the pandemic.

Funding for retirees whose pensions are protected by the state constitution is secure, DiNapoli said.

State and local governments are already reeling from pandemic-forced losses in tax revenue as well as added costs to fight the virus.

“Despite very solid returns through February, the coronavirus sent markets into a tailspin just as we were closing the books on our fiscal year,” DiNapoli said. “The fund has already recovered much of those losses, but volatility and uncertainty will persist until our public health crisis is resolved. Fortunately, the state’s pension fund entered this crisis as one of the strongest in the nation, and remains well-positioned to weather these challenging times and provide retirement security for our members for years to come.”

Analysts said there is reason for caution beyond the numbers released Thursday.

“Pension costs are virtually certain to rise in 2021,” said E.J. McMahon of the fiscally conservative Empire Center think tank. “Even before the pandemic, the state (Division of Budget) had forecast that employer pension contribution rates over the next three state fiscal years would increase 17% for (most public workers) … and 8.6% for police and firefighters.”

“New York’s pension fund is in far better shape than those of most other states,” McMahon said. “However, this is a bit like reassuring worried family members that 85-year-old grandpa is the healthiest patient in the cancer ward.”

The state’s retirement benefits are well-funded, agreed David Friedfel, director of state studies for the independent Citizens Budget Commission. But he noted that health benefits for retirees aren’t fully funded and the state has a future liability of $65 billion.

“During the state’s current financial problems, the state must maintain the positive standing of the retirement system and avoid any fiscal maneuvers or payment delays that could undermine the state retirement system’s finances,” Friedfel said.

The fund was valued as high as $225 billion on Dec. 31, when Wall Street was booming. Thursday’s announcement follows three years of extraordinary growth since 2016, when the fund was valued at $178.6 billion.

DiNapoli said 49.07% of the fund’s assets are in publicly traded equities, with the balance invested in bonds, mortgages, private equity, cash and real estate. The long-term rate of return is 6.8%, DiNapoli said. In 2017 and 2018, when Wall Street was booming, the return rate was more than 11%.

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