US - New York Mayor Michael Bloomberg said city pension funds have set unrealistically high assumed rates of return on investments at 8%.
"It's much too high an assumption for us, I think it should be lowered," Bloomberg said at a news briefing, referring to the city's five pensions holding almost $104bn. "That's going to require the city to put in more money. It's very difficult to see where we could get the money to do that."
The city, which must balance its budget or face a state takeover of operations, has to close a $3.3bn budget gap projected for fiscal year 2012, which starts on July 1. The deficit is forecast to grow to $4.8bn in 2014, while officials expect pension costs to increase to $8bn that year from $7.6bn now. Last month, the state pension fund cut assumed returns to 7.5% from 8%.
The real problem, the mayor said, is the pension system itself, which provides defined benefits that can't be reduced under guarantees the Legislature has placed in the state constitution. While it permits new, less-expensive benefit tiers for future employees, savings wouldn't be realized for 10 or 15 years, Bloomberg said.
"We've been trying to get the governor and the Legislature to vote a fifth tier," Bloomberg said. "They won't do it unless the unions ask them to."
"The taxpayers don't want to pay for it and the economies of the world don't really support those kinds of plans anymore," the mayor said.
Without a change, Bloomberg said, the municipal workforce will shrink, because the city won't be able to afford a payroll of the current size and cover retirement benefits at the same level as today. The city employed 302,436 in May, according to Marc Lavorgna, a spokesman for Bloomberg.
"We're going to try to farm things out to the private sector more because the municipal workers just cost too much," the mayor said. "The bottom line is, you can see in this country, the public is frustrated, they don't want to spend any more money."
The issue presents "a challenge facing pension funds all across the country," said Eric Eve, first deputy to city Comptroller John Liu, who acts as steward of the pension funds. The problem is "something we anticipate discussing with the five funds this fall," Eve said by e-mail.
The state's $124.8bn pension fund, the nation's third-largest, reduced the assumed rate of return on its investments as it recovers from market losses, Comptroller Thomas DiNapoli said. DiNapoli, the sole trustee of the plan, said state and local government employers' payments to the fund will increase to about 16.3% of payroll in February 2012, from 11.9% due in February 2011. The pension covers 1 million current and retired government workers.
New York City's pension funds provide retirement benefits for police, firefighters, school employees and civil-service workers and had more than $103.8bn in assets under management as of March 31. On September 28, its largest plan, the New York City Employees' Retirement System, which covers more than 180,000 active and about 130,000 retired workers, reported a 14% return in fiscal year 2010, which ended June 30.
"Some years you make money, some years you don't," Bloomberg said today. "It's overstating it a little bit to say the only one who's done that well is Bernie Madoff, but 8% for a long period of time is not something that very many pension funds have ever achieved."
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