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September 2, 2010

NYS Common Retirement Fund Employer
Contribution Rates to Increase in 2012

State Comptroller DiNapoli Accepts Actuarial Assumptions for the Fund,
Including Lowering the Assumed Investment Rate of Return to 7.5 Percent

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State Comptroller Thomas P. DiNapoli today announced increases over the previous year in the 2011-12 employer contribution rates for the New York State Common Retirement Fund (Fund).  In addition, DiNapoli announced he accepted the Retirement System actuary’s recommendations for the assumptions used in calculating employer contribution rates.  DiNapoli also reported the Fund’s valuation for the first quarter of the fiscal year.

“Unfortunately, it takes the economy a lot longer to climb out of a hole than it takes to fall in it,” DiNapoli said.  “The markets are still recovering from the 2008-09 financial meltdown, and that recovery continues to be volatile.  We handled the meltdown better than most pension funds, but we’re still feeling the impact, and, as I have consistently cautioned, the employer contribution rates I’m announcing today will reflect the impact of the financial crisis.”

The average contribution rate for the Employee Retirement System will increase from 11.9 percent of salaries to 16.3 percent.  The average contribution for the Police and Fire Retirement System is increasing from 18.2 percent 21.6 percent.

“By law we are required to review our assumptions every five years, including the assumption for the investment rate of return on the Pension Fund’s investments,” DiNapoli continued. “By practice we review those assumptions every year.  The actuary follows a prescribed, lengthy and diligent process as defined by statute with both internal and external review by our Actuarial Advisory Committee.  Today, I’m accepting the assumption recommendations from the Retirement System’s actuary, including his recommendation to lower the assumed investment rate of return to 7.5 percent.

“It’s my job to present the numbers accurately, and make sure the pension fund is adequately funded. The Pew Center recently reported that our fund was one of the four best-funded public pension funds in the nation.  We got there because we pay our bills. We don’t want to end up like New Jersey, and we won’t.”

The Retirement System actuary by law reviews many actuarial assumptions for the Retirement System, including: the mortality rate for members and retirees, the expected investment rate of return on pension fund investments, the rate of inflation and anticipated salary scales. The actuary prepares a report with recommendations, which is presented to an independent actuarial advisory committee.

The committee, which is comprised of actuaries from the private sector, then reviews the report.  Following the committee’s review, the actuary submits the report to the Comptroller, who by law can only accept or reject the recommendations.  The Comptroller cannot introduce new recommendations.

The Retirement System’s new assumption for its investment rate of return is more fiscally conservative than the national average for public pension funds and more conservative than the average for the top 100 private U.S. pension funds, according to Milliman’s 10th annual Pension Funding Study.

Earlier this year, a new law was enacted that will allow local governments to opt into a program that would allow them to budget a portion of their increased pension fund payments over ten years.  The employer contribution payment plan will help those localities mitigate the impact the increase in costs could have on local taxpayers.  Those localities opting in must also build reserve accounts during periods of decreasing pension contribution rates.  The reserve accounts would be used to protect taxpayers from future rate spikes. DiNapoli said the program was similar to a household utility budget plan that enables homeowners to pay one level payment rather than payments that spike at different times of the year.

DiNapoli also announced the Fund’s value for the quarter ending June 30.  Due to market volatility, the Fund’s market value declined to approximately $124.8 billion after Fund investments posted a negative 4.38 percent rate of return for the quarter.  DiNapoli is the first Comptroller to announce the Fund’s quarterly performance reporting. This practice is part of DiNapoli’s ongoing efforts to increase transparency and accountability regarding Fund management. The Fund provides benefits to more than one million retirees, beneficiaries and active employees.

Summary of Recommendations
Assumption Current Recommendation
Inflation/COLA 3.0 percent 2.7 percent
Investment Return 8.0 percent 7.5 percent
ERS Salary Scale 5.4 percent and indexed by age 4.9 percent and indexed by service
PFRS Salary Scale 6.8 percent and indexed by age 6.0 percent and indexed by service
Asset Valuation Method 5 Year Smoothing No Change
Pensioner Mortality A 20-percent load based on SFY 2001-05 Experience.  aggregate table used in the active valuation. Based upon SFY 2006-10 experience with SOA Scale AA loading. Gender/collar specific tables used in both valuations.
Active Member Decrements SFY 2001-05 experience with adjustments (primarily due to 9/11) Based upon SFY 2006-10 experience with no adjustments.

View the 2010 Retirement System Actuary’s report.
View the 2009 Retirement System Actuary’s report.
View the 2008 Retirement System Actuary’s report.
View the 2007 Retirement System Actuary’s report.

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