Record Returns Spur NY to Cut Assumed Return Rate to Below 6%

New York State Comptroller Thomas DiNapoli has lowered the long-term assumed rate of return on the $268.3 billion New York State Common Retirement Fund to 5.9% from 6.8%. He also said employer contribution rates to the New York State and Local Retirement System (NYSLRS) will be reduced.

The New York State Common Retirement Fund is the third largest public pension fund in the United States, and it holds and invests the assets of the NYSLRS on behalf of more than 1 million state and local government employees and retirees and their beneficiaries. The NYSLRS itself is broken into two systems: the Employees’ Retirement System (ERS) and the Police and Fire Retirement System (PFRS).

The estimated average employer contribution rate for the ERS will be lowered to 11.6% of payroll from 16.2%, while the estimated average employer contribution rate for PFRS will be cut to 27% of payroll from 28.3%. According to the actuary’s estimates for the fund, the expected total employer contributions for Feb. 1, 2023, are $4.4 billion, which is $1.5 billion less than the expected employer contributions during the same period for 2022 and the lowest level since 2011.

Employer rates for NYSLRS are determined based on investment performance and actuarial assumptions recommended by the retirement system’s actuary and approved by DiNapoli.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

“The fund’s strength gives us the ability to weather volatile markets. Our prudent strategy for long-term, steady returns helps ensure our state’s pension fund will continue to be one of the nation’s strongest and best funded,” DiNapoli said in a statement. “While the reduction in employer contribution rates is welcome news for taxpayers, our investment decisions are always made based on what is best for our 1.1 million working and retired members and their beneficiaries.”

It is the fourth time DiNapoli has lowered the state pension fund’s assumed rate of return, having reduced it to 7.5% from 8% in 2010, then to 7% in 2015, and then to 6.8% in 2019. The new reduction puts the fund well below the median assumed rate of return among state public pension funds of 7%, according to the National Association of State Retirement Administrators (NASRA). Only 34 of the 133 state public pension plans listed had assumed rates of return of less than 7%.

DiNapoli also announced that the funded ratio of the state pension fund is 99.3% and that it has annualized rates of return over the past five, 10, 20, and 30 years of 11.17%, 9.19,%, 7.65%, and 8.96% respectively.

That the assumed rate return is more than 3 percentage points below the fund’s 10-year annualized return is indicative of the retirement system actuary’s forecast of a lower-return environment over the next decade. In this year’s annual report to the comptroller on actuarial assumptions, Actuary Michael Dutcher provided a forecast of a 6.07% return net of fees over the next 10 years. He also said 2021’s record rate of return “provides a door of opportunity to align the assumed return with the sole trustee’s risk appetite.”

Dutcher also recommended increasing the inflation assumption to 2.7%, which would result in an increase in the cost of living adjustments (COLAs) to 1.4% from the current 1.3%. The COLA is half of the percentage increase in inflation raised to the next tenth, which means a COLA of 1.4% will be applied in September, which is 0.1% more than the current assumption. COLAs apply to the first $18,000 of a retiree’s single-life pension. Spousal beneficiaries are entitled to one-half of the retiree’s COLA.

“This is not primarily a response to the FY 2021 experience,” Dutcher said, “but there is a growing rumbling among economists that is less sanguine about inflation expectations than in the previous two decades.”

New York State Pension Fund Aims to Be Carbon Net Zero by 2040

NY State Pension Fund Commits Over $1.3 Billion in Investments in March

Tags: actuary, Assumed Rate of Return, COLA, Cost of Living Adjustment, Michael Dutcher, New York State Common Retirement Fund (NYCRF), NYSCRF, Thomas P. DiNapoli

William Lee (Art by Chris Buzelli)

William “Bill” Lee, the chief investment officer at NewYork-Presbyterian (NYP) Hospital will step down in September, the hospital has confirmed, “to pursue the next chapter in his accomplished career,” according to a hospital spokeswoman.

Lee has been senior vice president and CIO for NewYork-Presbyterian since 2016.

Lee has overseen the hospital’s $9.5 billion investment portfolio, including its endowment, retirement, and current assets, and managed the Office of Investments team responsible for all the hospital’s investment assets.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

The announcement comes on the heels of an August AA rating from Fitch, which noted NYP’s coronavirus challenges and gave the hospital a “stable” outlook. But the Fitch report also gives an indication of the kind of financial environment Lee was dealing with throughout the pandemic, when New York City became one of the earliest epicenters of the pandemic and one of the first to treat coronavirus patients.

“Even though NYP recognized approximately $900 million in federal stimulus funding in 2020, it was not enough to offset the impact of the pandemic, in terms of additional costs and lost revenue,” according to the report.

The hospital experienced large surges of COVID-19 patients, and its ICUs across the system were full of coronavirus patients until early July 2021 in four of the five boroughs of the city—Manhattan, Queens, Brooklyn, and the Bronx. Almost a third of its patients, or 27%, self-pay or rely on Medicaid.

“The rating also reflects expectations that NYP’s performance will return to levels consistent with a strong operating risk assessment after 2022, following lower coronavirus-related performance in 2020 and 2021,” according to Fitch.

Before NYP, Lee was chief investment officer at a few other places, including the Levi Strauss Foundation and Red Tab Foundation, as well as Kaiser Permanente, where he also served as chairman of the investment committee starting in 2005, overseeing approximately $71 billion in defined contribution (DC), pension, and foundation assets.

Earlier in his career, Lee managed interest rate and foreign exchange risk, and developed equity and fixed income risk models for Bank of America.

He also left the industry for eight years to work as a police detective.

Lee is a Chartered Financial Analyst (CFA) and a 2010 graduate of Harvard Business School’s Executive Leadership Program.

At NYP, Lee followed CIO Gloria Reeg, who retired in 2016.

Lee could not be reached for comment by press time.

“Since 2016, his effective financial stewardship has helped strengthen NYP’s ability to achieve our mission to provide exceptional care for all of our patients and the communities we serve, and we wish him continued success,” said the spokeswoman for New York-Presbyterian.