New York State Public Retirement Fund Assumed Rate of Return Lowered

New York State Comptroller Thomas P. DiNapoli announced the New York State and Local Retirement System’s (NYSLRS) long-term assumed rate of return on investments will be lowered from 7% to 6.8%, anticipating a lower return investment environment.

This marks the third time that DiNapoli has lowered the state pension fund’s assumed rate of return as economic and demographic conditions have changed. In 2010, he decreased the rate from 8% to 7.5%, and in 2015 to 7%.

“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. The long-term outlook for investors is changing and requires a more conservative approach. 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,” DiNapoli said.

Among the 127 plans the National Association of State Retirement Administrators (NASRA) measured in 2017, nearly three-fourths reduced their investment return assumption since fiscal year 2010. NASRA found public plans that reduce their return assumption in the face of diminished near-term projections will experience an immediate increase in unfunded liabilities and required costs.

Researchers from the Center for Retirement Research at Boston College found a decline in assumed rates of return due to lower assumed inflation combined with a change in asset allocations, resulting in a higher expected real return, has increased long-term costs for public pensions. The researchers say the decline in assumed rates of return is due to lower assumed inflation, so the increase in costs is much smaller than if the decline in the assumed return was due to a lower assumed real return.