US - New York City's pension costs will peak in 2016 before they begin a gradual, steady decline, a study commissioned by Comptroller John C. Liu predicts.
The report, compiled by Liu's Retirement Security NYC initiative, said from 2016 through 2040 and beyond, pension costs will grow at a slower rate than the City's economy, using up significantly less of its budgeting resources.
Sustainable or Not? NYC Pension Cost Projections through 2060, found the long-term decline in pension costs is primarily due to the introduction of new, less expensive benefit plans that took effect between 1995 and 2009.
The study, which makes use of long-term projections by independent actuaries, said pension costs for financial year 2012 were $7.3bn, or 11.1% of the City budget. By FY 2016, pension costs will rise to $8.3bn, or 11.4% of the City budget. The increase in pension cost through 2016 would not be materially impacted by new benefit changes or tiers that are applicable only to new employees, it added.
Police and Fire pension funds will experience the most significant costs decreases over the next 30 years, it said. Police will decrease from 65.1% of salary in FY 2010 to between 39.2% and 33.4% of salary in FY 2040. Fire will decrease from 83.1% of salary in FY 2010 to between 46.6% and 41.5% of salary in FY 2040.
"Poor market performance over the past decade means we still have a few tough years ahead as those investment losses catch up to us. However, significant reforms already implemented in recent years will drive down costs for decades to come," Liu said.
"While we cannot predict the precise economic cycles that will occur over the next 30 years, historical trends allow us to make reasonable assumptions about how pension obligations will affect the City's future budgets," Liu added.
"Retirement Security NYC will continue to bring objective research to bear on the public policy debate surrounding retirement issues that affect all New Yorkers."
Teresa Ghilarducci, director of the New School's Schwartz Centre for Economic Policy Analysis, said: "The impact of any pension reform takes time to have an effect," said, and a national expert on public pensions and retirement issues.
"This study demonstrates that, over the long-term, New York City's pension funds provide a secure retirement for firefighters, police officers, teachers, and other City employees at a reasonable cost to taxpayers."
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