New York Cuts Investment Return Assumptions to 6.8%

In anticipation of a lower return investment environment, New York is lowering the long-term assumed rate of return on investments for the New York State and Local Retirement System (NYSLRS) to 6.8% from 7%.

New York State Comptroller Thomas DiNapoli made the announcement along with the release of the state’s annual report on actuarial assumptions.

“The long-term outlook for investors is changing and requires a more conservative approach,” DiNapoli said in a statement. “As in years past, we’re taking the responsible action of lowering our assumed rate of return now so we can better weather market volatility.”

The state pension fund’s average rate of return over the past three, five, 10, 20, and 30 years are 9.32%, 7.00%, 10.34%, 6.64%, and 8.94%, respectively.

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DiNapoli also said that the NYSLRS employer contribution rates for fiscal year 2020-2021 will remain the same as the previous year for the Employees’ Retirement System (ERS), and that there will be a “small increase” in rates for the Police and Fire Retirement System (PFRS). NYSLRS is made up of these two systems.

The estimated average employer contribution rate for ERS will remain at 14.6% of payroll, and the estimated average employer contribution rate for PFRS will increase to 24.4% from 23.5% of payroll. Employer rates for NYSLRS are based on investment performance and actuarial assumptions recommended by the Retirement System’s Actuary and approved by DiNapoli.

“Each year, for the past seven years, we’ve been able to lower pension contribution rates or essentially keep them flat,” DiNapoli said. “Through solid investment returns, prudent management and a diverse portfolio we have kept the state pension fund strong and one of the best funded in the nation.”

It is the third time DiNapoli has lowered the state pension fund’s assumed rate of return. He previously lowered the assumed rate of return to 7.5% from 8.0% in 2010, and again in 2015 to 7.0% from 7.5%. According to the National Association of State Retirement Administrators the median assumed rate of return among state public pension funds is 7.25% as of February, and only 16 public funds currently have return assumptions of below 7%.

The funded ratio of the state pension fund was 96.1% at the end of fiscal 2019, down from 98.0% at the end of fiscal 2018. DiNapoli cited a June report from the Pew Charitable Trusts that ranked the state’s pension fund as one of the best funded among public pension plans. He said that only eight states had a funded ratio of 90% or higher based on 2017 data, with New York ranked behind only Wisconsin, South Dakota and Tennessee.

The retirement system also lowered its cost of living adjustments (COLA) to its minimum of 1.0%, which will be applied this month, and which is 0.3% less than the current assumption. The COLA program provides payments equal to one half of the inflation rate based on the first $18,000 of the single life allowance. There is a floor of 1% and a cap of 3% on COLA adjustments.

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Tags: Assumed Rate of Return, New York, New York State and Local Retirement System, Pension, Thomas P. DiNapoli

US Sens. Jeanne Shaheen, a New Hampshire Democrat, and Marco Rubio, a Florida Republican, are calling on the head of the Federal Retirement Thrift Investment Board (FRTIB) to reverse an investment decision they say will help fund the Chinese government using the retirement savings of federal employees.

The two senators sent a letter to FRTIB Chairman Michael Kennedy, saying the “short sighted” decision to mirror the MSCI All Country World ex-US Investable Market Index “will expose nearly $50 billion in retirement assets of federal government employees, including members of the US Armed Forces, to severe and undisclosed material risks associated with many of the Chinese companies listed on this MSCI index.”

They said the decision to track the index, which is expected to be implemented next year, “constitutes a decision to invest in China-based companies, including many firms that are involved in the Chinese Government’s military, espionage, human rights abuses, and ‘Made in China 2025’ industrial policy.”

According to the senators, the index or its sub-indexes have included AviChina Industry & Technology Ltd., whose subsidiaries develop aircraft, unmanned aerial vehicles, missiles, and other weapons systems for the Chinese military. They noted that AVIC is a state-owned entity that the US Trade Representative has called “the sole domestic supplier of military aircraft” to the Chinese army.

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“It is well-known that the Chinese government uses state-owned and state-directed enterprises to control production, compete in global markets, and serve the Chinese Communist Party’s military, political, and economic goals,” said Shaheen and Rubio in their letter. “Many of these Chinese companies may soon receive investments directly from the paychecks of members of the US Armed Services and other federal government employees because of your decision.”

In addition to the military-related aspect of the investment, they also said the decision would invest federal employees’ retirement savings in companies that are guilty of human rights violations. They cited Hangzhou Hikvision Digital Technology (Hikvision), a state-run technology firm that’s on the index. They said the company has tens of thousands of surveillance cameras throughout the Xinjiang Uighur Autonomous Region that “support the Chinese government’s detainment of over 1 million Uighur Muslims and other ethnic and religious minorities.”

According to the senators, constituent entities of Hikvision’s controlling shareholder, the China Electronics Technology Group Corp., were added to the US Commerce Department’s Entity List last year for “acting contrary to the national security or foreign policy interests of the United States.”

Additionally, they noted that National Defense Authorization Act for Fiscal Year 2019 prohibits the US federal government from procuring equipment from Hikvision, and ZTE Corp., which they said also has been in the index or its sub-indexes, and will ban federal contracts with companies using Hikvision’s equipment or services beginning in August 2020.

Tags: China, Federal Retirement Thrift Investment Board, Jeanne Shaheen, Marco Rubio, Pension, Senators