City Pension Funds Lose Billions
Taxpayers Could Be On the Hook
By ROSS GOLDBERG
New York City officials are bracing for increased pressure on the budget as the city's pension funds are reeling from the credit crisis and posting billions of dollars in losses.
In the nine months leading up to March 31, the city's five pension funds lost a total of nearly $5 billion, or 4.4%, according to data from the city comptroller's office. This is a far cry from projections published as recently as last month, when budget planners assumed the pension system would post no losses.
If those losses are not recovered by the end of the fiscal year, which ends Monday, the city will have to pay out several billion dollars through 2015, with the first payment of $190 million set for 2010.
The government will have to make up the shortfall from the poor performance of the pension funds at a time when it is already suffering from tax revenue losses due to a souring economy.
"In itself, it's manageable," the research director for the Citizens Budget Commission, Charles Brecher, said of the pension fund losses. "The fact that it's going to be combined with revenue shortfalls means that we've got serious problems."
The Teachers' Retirement System of the City of New York, which has lost 5.06% of its value in the nine months ending March 31, has been the worst performer so far this year. The New York City Employees' Retirement System, which lost 3.98% in the same period, performed the best. Other pension funds include the New York City Police Pension Fund, the New York City Fire Department Pension Fund, and the Board of Education Retirement System of the City of New York. Numbers for the state pension system are not yet available, a spokesman for the state comptroller said.
The city's funds' performance so far this fiscal year "adds significantly to the amount of money the city has to contribute," a spokesman for the Independent Budget Office, Doug Turetsky, said. "The city is going to be facing bigger increases than perhaps previously anticipated."
New York City's pension funds did worse during the nine months ending March 31 than other public pension funds worth more than $1 billion, which posted an average loss of 3.3% during that period, according to an index from consulting group Wilshire Associates.
New York's pension funds may have suffered more than their peers because of heavy investments in stocks. "They have such a high exposure to stocks that if the stock market isn't doing well, it's going to be more visible for them," the editor of the newsletter Pensions & Investments, Nancy Webman, said. "But in a year when the market is doing well, they're going to be fabulous."
A spokesman for Comptroller William Thompson Jr., who is an investment adviser to New York City's pension funds and is a likely candidate for mayor in 2009, said the funds have diversified in recent years. "A challenging market over the past year has affected investors worldwide," a spokesman, Michael Loughran, said in a statement. "However, the funds are performing on pace with the major market indexes, due in part to the diversification of the portfolio."
According Wilshire's index, other large public funds have returned an average of 12.01% annually over the five years ended March 31, 2008. New York's worst-performing fund, the teachers' fund, returned 11.97% during that period, while the best, the police fund, returned 12.89%.
While the funds' gains over the past several years should help offset the rough times experienced during a slowing economy, legislators took advantage of the strong performance of the funds to authorize additional pension benefits, the director of the Empire Center for New York State Policy, E.J. McMahon, said. The city's annual contribution to the pension system will have nearly doubled between fiscal years 2005 and 2009, when it will owe about $6.1 billion.
"A large chunk of all the revenue generated by the economic growth of the last few years has been consumed by the increase in pension costs," Mr. McMahon said. "The way the legislature approached pension sweeteners is just to pass the union's wish list."