Monday, May 28, 2012

Pensions and the New York City Budget

This from the New York Times:
Few investors are more bullish these days than public pension funds. 

While Americans are typically earning less than 1 percent interest on their savings accounts and watching their 401(k) balances yo-yo along with the stock market, most public pension funds are still betting they will earn annual returns of 7 to 8 percent over the long haul, a practice that Mayor Michael R. Bloomberg recently called “indefensible.”  

Now public pension funds across the country are facing a painful reckoning. Their projections look increasingly out of touch in today’s low-interest environment, and pressure is mounting to be more realistic. But lowering their investment assumptions, even slightly, means turning for more cash to local taxpayers — who pay part of the cost of public pensions through property and other taxes.
In New York, the city’s chief actuary, Robert North, has proposed lowering the assumed rate of return for the city’s five pension funds to 7 percent from 8 percent, which would be one of the sharpest reductions by a public pension fund in the United States. But that change would mean finding an additional $1.9 billion for the pension system every year, a huge amount for a city already depositing more than a tenth of its budget — $7.3 billion a year — into the funds. 

But to many observers, even 7 percent is too high in today’s market conditions. 

“The actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent,” Mr. Bloomberg said during a trip to Albany in late February. “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.”...


Anonymous said...

I am always a little amazed as our my friends in non educational jobs that teachers who often enter the work force in their early twenties can "retire" in Kentucky at the age of 50. That just isn't very realistic to me or the folks I know who are now looking at blue collar retirment thresholds being pushed out to 67 and beyond. Understand, I am not saying teachers don't work hard, but how can we justify, much less pay for, teachers drawing retirement at the same time they are getting paid for teaching in ares considered critical shortage areas after changing systems or sitting out for a few months after retiring?

Anonymous said...

How can we exist in a society that complains about a teacher who has invested about 30 years of his or her life educating hundreds of citizens who grow up to contribute to the state tax coffers receiving a modest pension yet not say a word when private sector CEO's receive bonuses and serverance packages individually worth millions of dollars from profits which the company has made off our consumer spending and often federal tax and regulatory exemption?