New York Pension Fund Rate of Return Disappoints: Is It Still Cooking the Books When the ACTUAL Rate of Return Drops?

When General Treasurer Gina Raimondo led the way in edging down the projected rate of return for Rhode Island’s state pension fund from 8.25% to 7.5% (and tweaking life expectancy assumptions for the system), the President of the Cranston Firefighters Union, Paul Valletta, accused her of cooking the books to create a problem where none existed.
The New York State and Local Retirement System just ended its fiscal year. Don’t tell Mr. Valletta but its rate of return, while respectable, failed to meet expectations.

The New York State and Local Retirement System (NYSLRS) closed its most recent fiscal year with a return of just 5.96 percent — well below the 7.5 percent target rate used to discount its long-term liabilities.

So is the entire stock market now participating in the wilful cooking of pension books? Or, more likely, today’s New York Times has hit on the explanation.

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.

These words were printed in a newspaper that is not exactly a bastion of conservatism or champion of the taxpayer. Despite that, it is quite possible that “realistic” will remain defined, in some small circles, as “cooking the books”.

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10 years ago

I look forward to Bob Walsh weighing in to tell us that the world is wrong and he is right, that if we would just ignore reality and use the “Walshian Assumptions” everything would be fine.
Perhaps he’ll get Andrew to run his famous simulation again using the “Walshian Assumptions” so that he can point to it and say “see, IF the fund merely earns these returns, we can surely afford these unsustainable, unaffordable, bankrupting entitlements for my entitlement-minded flock”.
To which we of course would say “yes Bob, and IF a frog had wings, it wouldn’t bump its ass, you ass.”
To which Bob would then say “OK, your not buying that? How about door #2, where we monetize the Lottery and we use the proceeds to fund the unsustainable, unaffordable, bankrupting entitlements of my entitlement-minded flock?”
To which we say “Bob, let us introduce you to Gina. Unlike some of your minions, she’s not going to be fooled into using your screwy Walshian Assumptions” …and the rest is history.

10 years ago

While the year to year projections are a bit aggressive, over the long term they have by and large been shown to be reasonable. It should be noted that pensions are earning 6% interest. Do 401k’s? Pensions in of themselves are a great way to provide for retirement. The problem is companies saw money to be made with 401Ks so… there went Americans pensions. Greed at its worst.

10 years ago

I guess RI and General Treasurer Gina Raimondo will have to take lessons from Hawaii how to wisely invest their retirement portfolio! I must also note, Hawaii unions sued in court to force State of Hawaii to contribute the required matching % funds into The State Employees’ Retirement System Pension Fund all the way up to the Supreme Court level and won!!!! “Strong quarter lifts state pension fund by 8.3% The ERS approaches its peak asset level as investors embrace risk once again By Dave Segal POSTED: 01:30 a.m. HST, May 16, 2012 Honolulu Star Advertiser The state’s largest public pension fund moved back into positive territory for the fiscal year as it soared 8.3 percent last quarter to boost its total assets to a near-record $11.5 billion. (The following was a graphic chart in the newspaper article) Tracking the Money The State Employees’ Retirement System Pension Fund rose in third quarter 2012. FY * 2012 3Q** Gain/loss +8.3% Total Assets (in Billions) $11.5 FY* 2012 2Q*** Gain/loss +5.5% Total Assets (in Billions) $10.7 FY* 2012 1Q****Gain/loss -11.2% Total Assets (in Billions) $10.2 FY* 2011……………Gain/loss +20.7%Total Assets (in Billions) $11.6 FY* 2010……………Gain/loss +11.7%Total Assets (in Billions) $9.8 FY* 2009……………Gain/loss -18.7%Total Assets (in Billions) $8.8 FY* 2008……………Gain/loss -3.4%Total Assets (in Billions) $10.8 FY* 2007……………Gain/loss +17.7%Total Assets (in Billions) $11.5 FY* 2006……………Gain/loss +11.1%Total Assets (in Billions) $9.9 FY* 2005……………Gain/loss +11.3%Total Assets (in Billions) $9.2 FY* 2004……………Gain/loss -15.8%Total Assets (in Billions) $8.6 FY* 2003……………Gain/loss +3.0%Total Assets (in Billions) $7.7 *Ends June 30 of each year; ** Ended March 31, 2012, ***Ended Dec, 31m 2011, ****Ended Sept. 30, 2011 Source: State of Hawaii Employee’s Retirement System Star-Advertiser Hawaii’s Employees’ Retirement System’s portfolio increased $814.4 million during the January-March period. Through the first nine months of the 2012 fiscal year, which ends June 30, the fund… Read more »

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