A sagging stock market is undermining city and state projections for the health of their pension funds — a trend that will likely cost billions of dollars to correct.
For several years, rising share values had boosted the value of the assets held to pay benefits for retired government workers, allowing the city and governments throughout the state to save billions of dollars in contributions.
Now those good times have come to an end with the selloff in the stock market hitting pension funds even as city income tax collections fall, making it harder for Mayor Eric Adams to balance his city budget while also keeping the retirement funds topped off.
New York City’s pension funds lost 8.65% of their value for the fiscal year that ended June 30, according to a release Friday from city Comptroller Brad Lander.
While more detailed information won’t be released until September, the losses reduced the pension funds to about $240 billion.
While the S&P 500 stock index fell 14% in the first six months of 2022, Lander said that all is well with the pension funds “Despite market declines on a scale that hasn’t been seen in decades, the New York City retirement system outperformed our benchmarks and are well positioned to weather market volatility in the long run,” he said in a statement.
But the city budget — currently $101 billion — will still take a hit.
In the previous year, pension gains were so large that the city saw its “funded ratio” — a figure indicating how close the funds are to being able to pay all the benefits promised to workers — soar from 78% to 98%. As a result, the city last year reduced its expected contributions to its pension funds by a total of $5 billion over Adams’ first three budgets.
Almost all that money will need to be restored. The market decline is likely to require the city to increase its allocation for pensions by about $4 billion over Adams’ first term, according to E.J. McMahon of the Empire Center.
While McMahon noted the city has put aside billions of dollars in reserves, “unless the stock market rebounds and the economy grows more strongly, that cushion could go up in smoke more rapidly than the mayor has anticipated over the next few years,” he said.
The funded ratio will also decline, although the exact figure won’t be released until September.
Meanwhile, New York State Comptroller Tom DiNapoli on Monday reported that the state pension fund posted a 9.5% increase for its fiscal year ended March 31, bringing its assets to $272 billion.
However, the state is likely to show a significant decline when it reports its results for the most recent April to June quarter.
The state’s pension fund at its fiscal year end was fully funded with a ratio of 103%.