A new report claims that the New York state pension system is currently underfunded by $71 billion and that tax revenue would have to nearly double to $4 billion annually over the next five years to keep it solvent.
Assets in the system, the third-largest public pension system in the U.S., have declined significantly over the last number of years due to market volatility. Additionally, promised benefits have increased as lawmakers have increased the amount to be paid out to pensioners.
The report from the conservative-leaning Empire Center for New York State Policy states that the current annuity style traditional pension system is onerous on taxpayers and leaves them liable for billions of dollars. Current market rates indicate that in order to purchase an annuity to meet the benefit level of the median $47,000 annual pension of one New York teacher would cost the state nearly $900,000.
Market volatility and increasing health benefit costs are combining to create underfunded pensions throughout the nation at all levels of government. New York, like many states, is legally prohibited from reducing promised pension benefits to state employees.
The Empire Center recommends reforming the pension system for new state employees to more closely resemble retirement plans common in the private sector with clearly defined, fixed contribution amounts from taxpayers.
Thomas DiNapoli, the Comptroller for the state of New York in charge of administering the pension plan challenges the assertions of the report, saying that the system should be considered fully funded when taking into account the current value of future expected contributions to the account from employers and employees.
The Empire Center report also takes exception with the projected market rates of return. The state plan currently assumes a 7.5 percent annual return. Over the last 30 years, the state plan has returned slightly more than 10 percent annually, but the previous 10 years have seen average annualized returns below 4 percent. The state believes that its 7.5 percent projection is reasonable while the Center urges using five-year averages in order to more accurately reflect current market conditions.