Contact: Mike Loughran, (212) 669-3747 June 2, 2011
NEW YORK, NY – A new report from Comptroller John C. Liu’s Retirement Security NYC initiative shows that City pension costs will peak in 2016 before they begin a gradual, steady decline. 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.
The report titled, “Sustainable or Not? NYC Pension Cost Projections through 2060,” finds 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.
“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,” Comptroller Liu said.
The study, which makes use of long-term projections by independent actuaries, produced three key findings:
- City pension costs will increase nominally through FY 2016, after which they will decline as a percentage of the City’s expenditures and revenues.
Note: In FY 2012, pension cost is $7.3 billion or 11.1 percent of the City budget. By FY 2016, pension cost will rise to $8.3 billion or 11.4 percent 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.
- Current discussions use a 30 year time period and the study shows by FY 2040, City pension costs as a percentage of the City’s budget will decline from 11.4 percent in FY 2016 to:
- 5.1 percent, assuming an 8.0% rate-of-return; or
- 5.5 percent, assuming a 7.5% rate-of-return; or
- 6.0 percent, assuming a 7.0% rate-of-return.
- The primary reason for declining pension costs is the phasing-in of new employees whose benefits are significantly lower than those offered to municipal workers in the past. Police and Fire Pension Funds will experience the most significant costs decreases over the next 30 years.
- Police will decrease from 65.1 percent of salary in FY 2010 to between 39.2 to 33.4 percent of salary in FY 2040.
- Fire will decrease from 83.1 percent of salary in FY 2010 to between 46.6 to 41.5 percent of salary in FY 2040.
“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.” Comptroller Liu said. “Retirement Security NYC will continue to bring objective research to bear on the public policy debate surrounding retirement issues that affect all New Yorkers.”
“The impact of any pension reform takes time to have an effect,” said Teresa Ghilarducci, Director of the New School’s Schwartz Center for Economic Policy Analysis, 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.”
About the Independent Actuaries
The long term projections in this study were conducted and certified by independent actuaries, the Hay Group. The Company is a global management consulting firm that works with organizations across all areas of human resources, with more than 7,000 clients in 47 countries. Hay Group's benefits practice was founded in 1911 and is one of the first organizations in the US to provide independent actuarial consulting services.
About the New York City Pension Funds
The New York City Pension Funds include: the New York City Employees’ Retirement System, the Teachers’ Retirement System, the New York City Police Pension Fund, the New York City Fire Department Pension Fund, and the Board of Education Retirement System.
About Retirement Security NYC
Retirement Security NYC is a major initiative launched by Comptroller John C. Liu to protect the retirement security of public employees while ensuring the City’s financial health.
This report marks the third in a series produced by the initiative. The first report, “Municipal Employee Compensation in New York City,” found that wages paid to public employees are less on average than those received by their private sector counterparts, especially for highly-educated workers.
The second report, “The $8 Billion Question,” examined the growth in New York City pension costs over the past decade. It found that the rise in pension expenses was due primarily to poor market performance between 2000 and 2010.