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October 1, 2010

 

OSC ANALYSIS: FIXED-INCOME ONLY PENSION FUND WOULD HAVE INCREASED TAXPAYER CONTRIBUTIONS BY $33 BILLION

A fixed-income only strategy for the New York State Common Retirement Fund would have required approximately $33 billion more in employer contributions or resulted in a $57 billion decrease in the Fund's value over the past 20 years, according to an Office of the State Comptroller's analysis released today by State Comptroller Thomas P. DiNapoli.

"An investment strategy based solely on fixed-income assets would have had a devastating effect on the pension fund and on taxpayers, who would have paid an extra $33 billion to keep the Fund at its current level," DiNapoli said. "My office's analysis shows why the Fund's current investment mix of equity and fixed-income assets has made New York's pension fund one of the best managed and funded retirement systems in the nation. It's a strategy that works."

DiNapoli's office completed an analysis of the Fund over the past 20 years, ending March 31, 2010, to determine the effects a fixed-income only strategy would have had on the Fund. The analysis focused on two scenarios.

Scenario 1
The first scenario examined the effect on the Fund's value if employer contribution rates remained the same as actual contributions while a fixed-income strategy was employed. Under this scenario, the analysis determined the Fund's value would be $76 billion, a $57 billion or 42.8 percent decrease from its actual value at March 31, 2010. This decrease in value would result in a substantial underfunding of the pension fund and put its ability to meet its obligations in jeopardy.

Fund Balance (in millions)
Actual Common Retirement Fund $132,500
Fund Using Fixed-income Return $ 75,768
Difference $(56,732)
Percent Difference -42.8%


Scenario 2
The second scenario examined the effect a fixed-income strategy would have on employer contribution rates over the same 20-year period. Under this scenario, the analysis found employers participating in the Retirement System would have paid $33 billion to $35 billion more than the $22 billion in actual employer contributions that were needed during this period, or 148 to 155 percent more than the actual contributions.

Employer Contributions (in millions)
Actual Employer Contribution $ 22,430
Necessary Fixed-Income Contribution $ 57,267
Difference $ 34,837
Percent Difference 155%


Currently, the Fund targets investing 30 percent of its assets in fixed income and 70 percent of its assets in equity assets. The Fund's fixed income assets are bonds and TIPS. Its equity assets include domestic and international public equities as well as real estate, absolute return strategy, and private equity investments.


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