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May 30, 2009

New York State Pension Fund Declines 26 Percent

DiNapoli Proposes Bill to Help State, Local Government Employers Manage Costs

New York State Comptroller Thomas P. DiNapoli today released a preliminary estimate indicating the rate of return for the New York State Common Retirement Fund (Fund) assets was a negative 26.3 percent, with the Fund value declining to approximately $109.9 billion for the fiscal year that ended March 31, 2009. DiNapoli attributed the Fund’s decline to the global economic crisis, which drove the major U.S. stock indices down between 33 and 40 percent. DiNapoli said the market downturn would require higher employer pension contribution rates in future years, and he announced proposed legislation to give state and local government employers an option to manage those expected increases.

“Like every one who has seen the value of their investments decline, we’ve felt the weight of the global economic crisis,” DiNapoli said. “But our diversification and long-term investment strategies helped us weather the storm better than most, and we’re fully funded and well positioned to participate in America’s economic recovery.

“In today’s economic environment, the temptation for some investors may be to run and hide. But we have the liquidity and the right investment programs in place to take advantage of attractive opportunities. We’ve been through difficult markets before and we are well prepared to continue pursuing sound investments that will help the fund rebuild stronger than ever.

“Benefits remain safe and secure, but the stock market’s dive will increase contribution rates for local governments beginning in 2011. Our legislation will provide state and local government employers an option that will mitigate the impact of increased pension contributions. We must act today to address tomorrow’s challenges.”

DiNapoli noted steep declines in the stock market played the largest role in the Fund’s contraction as approximately 42 percent of Fund assets are allocated to publicly traded stocks. The NASDAQ, Dow Jones Industrial Average and S&P 500 indices declined by 33.7 percent, 37.9 percent and 39.6 percent, respectively, during the Fund’s fiscal year. DiNapoli said the Fund performed well relative to its peers, finishing in the top third of 74 peer funds tracked internally and in the upper half of the 125 funds tracked by Wilshire’s Trust Universe Comparison Service.

DiNapoli said the Fund, as a long-term investor, is built to survive even the most challenging investing environments. For example, the Fund saw the value of its assets decline by about $30 billion in the markets that followed the dot-com bust and the Sept. 11, 2001 terrorist attacks, only to see steady recovery in the subsequent years.

Last September, DiNapoli announced that employer contribution rates for 2010 would be reduced for a fifth consecutive year. At the time, he said rates were likely to increase in 2011. DiNapoli’s proposed legislation would allow employers to amortize a portion of the added costs over time, which would provide government employers with tens of millions of dollars of temporary budget relief while ensuring the Fund remains one of the strongest, best-funded public pension systems in the United States.

DiNapoli said that similar legislation was passed in 2003 to help state and local governments manage increasing pension contribution rates through difficult economic times. In addition to providing the amortization option, the legislation would require participating employers to pay into special accounts during periods of declining contribution rates to reduce volatility of payments in future years.

In September, DiNapoli will announce contribution rates for 2011. DiNapoli is proposing the legislation now to provide state and local government officials as much time as possible to prepare for the increased contribution rates.


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