New York City Actuary Predicts Cut in Pension Fund's Assumed Return Rate

New York City’s chief actuary joined Mayor Michael Bloomberg and Comptroller John Liu in predicting that the biggest U.S. city will lower the assumed return on its $106.2 billion pension fund from the current 8 percent rate.

Robert North, who is evaluating changes to the actuarial assumptions of the city’s five retirement plans, said he’ll present recommendations to their boards in mid-2011. He declined to say what the new rate might be. Any change in the assumed rate of return on the city’s investments must be approved by the state Legislature.

“We anticipate the proposed package is likely to result in significantly greater employer costs,” North, 60, said in a telephone interview today. “We may end up with some phase-in or deferrals.”

New York City will likely pay $8.3 billion for pensions in the next fiscal year, Budget Director Mark Page said two weeks ago, a 19 percent increase. The jump is partially due to the city shifting $600 million of its pension contributions from this year into the fiscal 2012, which starts July 1.

Combined with slower growth in tax revenue and rising health-care costs, the city may have to fire 6,200 workers, Bloomberg said Nov. 18.

National Scope

Public-pension funds from New York state to Illinois are cutting their expected returns amid market losses and the longest recession since the Great Depression. New York state’s $132.8 billion retirement fund lowered its target to 7.5 percent from 8 percent, while the Illinois State Employees’ Retirement System cut its rate to 7.75 percent from 8.5 percent.

In the 10 years ending in June 2009, New York’s pensions returned 2.09 percent, according to the city. The funds returned 14.2 percent in the fiscal year ended June 30 of this year.

North said New York would likely need the state Legislature to approve a temporary extension of the current actuarial interest-rate assumption beyond the end of this fiscal year because an independent actuary, the Hay Group, won’t finish reviewing the city’s assumptions until the first half of 2011.

The city is reviewing forecasts on demographics, interest rates, wages, inflation and the future value of the benefits, said North. That will determine how much New York will have to contribute to the retirement funds, he said. The plans cover 334,000 city employees and 237,000 retirees and beneficiaries.

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