DiNapoli reports big drop in ERS pension fund, proposes smoothing employer rate increases

Saturday, May 30th, 2009 at 6:28 am by

On Friday, State Comptroller Thomas DiNapoli reported that the value of the State’s “Common Retirement Fund” has shrunk by 36 percent over the fiscal year ending March 31st.  These are the investments held by the State and Local Government Employees Retirement System (ERS).

Comptroller DiNapoli said that the drop would necessitate a steep increase in the contribution rate paid by public employers, including state and local governments and school districts.  Currently, public employers pay a rate equal to about 7.5 percent of payroll; the Comptroller said the contribution rate will likely need to rise to 11 percent by 2011.

About 20 percent of school employees are in ERS; most are in the Teachers Retirement System.  TRS’s investment year runs through June 30th.  It will announce earnings performance and contribution rate changes this summer or fall.

Mr. DiNapoli also announced that he was proposing legislation to give public employers an option to “smooth out” the rate increases by amortizing part of the increase over a 10-year period, essentially borrowing from the pension fund to spread the increase over a longer period.

The Comptroller noted that ERS’s investment performance surpassed both the Dow Jones Industrial Average and the S&P 500 and ranked in the top-third of peer retirement funds.

The Albany Times Union reported that a spokesperson for the New York State Association of Counties “…fears the percentage going to pension costs could jump even higher in future years — perhaps to 30 percent.”

The Comptroller’s announcement provoked a oddly confrontational response from Governor Paterson.

Among other points, the Governor said, “The increases in employer pension contributions announced by the Comptroller today will have a devastating impact on already overburdened local property taxpayers. I am concerned that the Comptroller’s proposal does nothing to mitigate these additional burdens.”

The Governor urged the Comptroller to support his proposal for a new Tier V benefit structure to cover new entrants into public retirement systems.

Mr. DiNapoli responded, saying “The Governor is wrong to dismiss this proposal.”

In fact, they’re both right.  Over the long haul the state has to ensure that public employee benefits are sustainably affordable for taxpayers.  But a Tier V would produce relatively small initial savings.  The Comptroller’s “smoothing” proposal would provide more immediate relief from spiking contribution rates.

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