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Teachers' Retirement System Misses 10-Year Rate-of-Return

12:47 PM, Oct 31, 2013   |    comments
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By Joseph Spector

Albany Bureau Chief

ALBANY The state's Teachers' Retirement System missed its expected rate-of-return of 8 percent over the last five and 10 years.

Even though the fund posted a return of 13.7 percent in the 2012-13 fiscal year, which ended June 30, it missed its long-term target.

A spokesman for the fund told Gannett's Albany Bureau on Thursday that the five-year annualized net rate of return was 5.2 percent. The 10-year rate was 7.5 percent. The 25-year net rate of return was 9.1 percent.

The Teachers' Retirement System is the only large public pension fund in the state that still keeps a 8 percent estimated rate of return. New York City pension funds have dropped their rate of return to 7 percent, and the state's pension fund for 1 million local and state workers in 2010 dropped its estimate to 7.5 percent.

E.J. McMahon, president of the Empire Center for New York State Policy, said 8 percent is too lofty an estimated rate of return, and it's hurting the fund and school districts -- who are paying higher retirement costs.

"At 8 percent, they are out of step with the other public pension systems in New York," McMahon said. "I think 8 percent is completely unrealistic."

John Cardillo, a spokesman for the fund, said the system looks at its long-term results.

"NYSTRS is a long-term investor with benefits not paid for 25 years or more. Our 25-year rate of return is 9.1 percent, or more than 100 basis points above our 8 percent assumed rate of return," Cardillo said. "Since the worldwide financial crisis of 2008, our overall investment portfolio achieved double-digits returns three times -- including a 23.2 percent return in 2010-11."

The teachers' pension fund, which provides 277,000 active members and nearly 150,000 retirees, is still digging out from the recession. In the 2008-09 fiscal year, the fund posted a loss of 20.5 percent. And in the 2011-12 fiscal year, it netted only a 2.8 percent gain.

The poor performance in those years overwhelmed some positive years: The fund was up 23 percent in the 2010-11 fiscal year and 12 percent in the 2009-10 year.

The performance of the fund, valued at $98.5 billion, is critical for school districts. With an increase in retirements and struggles on Wall Street, the fund has been stressed -- leading to higher retirement costs for schools.

Pension costs for the state's roughly 700 school districts is increasing by a whopping 37 percent next year. Pension costs are increasing from 11.84 percent of payroll to 16.25 percent of payroll.

New York City Mayor Michael Bloomberg has been critical of pension funds, even knocking those that have 7 percent rates of return.

"If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy's name is not Madoff," Bloomberg said last year in Albany.

 

 

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