Rising pension costs for schools, governments in St. Lawrence County could turn around soon
By CRAIG FREILICH
The rising cost of pension contributions for municipal and school employees in St. Lawrence County could start to go down next year or the year after that, according to the state agency that administers the funds.
One of the fastest-rising expenses that St. Lawrence County government and other local governments and school districts have had to deal with has been the contribution to the employees’ retirement fund.But those payments might actually start to go down within the next couple of years if the securities markets and the national economy continue to recover the losses of a few years ago.
The New York State Common Retirement Fund takes the money it receives in behalf of hundreds of thousands of active employees of state and local governments and invests it to cover the cost of the workers’ pensions when they retire.
The difficulty in keeping up with the cost began in 2008, St. Lawrence County Treasurer Kevin Felt says, when the value of investments in the state-run pension fund, such as securities and real estate, took a big hit along with other investors in stock markets, and the national economy took a downward turn, so more money was required to keep the pot of money “fully funded.”
In the state’s fiscal year 2009, that fund dropped in value by 26.4 percent, “which amounted to 34 percent due to expected returns” that had been calculated in the formula but which did not materialize as the markets dropped, according to Eric Sumberg, spokesman for the state comptroller’s office.
“That was the largest drop in the fund’s history. That is the primary driver for the increased costs” that municipalities have seen over the last few years, Sumberg said.
In the most recent Village of Potsdam budget, “the cost of retirement was up close to 20 percent,” said Village Administrator David Fenton. “It’s been a struggle.
“But it looks like next year or the year after, the actuaries say, it will start going down again. That’s a bit of a bright light,” Fenton said.
“I hope it’s not a pipe dream,” said Sumberg.
More recently, as the securities markets have rebounded into record high territory, the retirement fund has hit a new high, too. Comptroller Thomas DiNapoli, whose office administers the fund, announced in May that “The New York State Common Retirement Fund has reached a milestone” with a value of $160 billion “and it remains well-positioned for growth as the financial markets continue to gain strength.”
According to Fenton, the improvement in the economy and good performance of the investments in the state’s pension portfolio – the “return on investment” -- means the amount that local governments, school districts and other government agencies will be required to add to the fund will not be as high as it has been in recent years.
“Fiscal year 2014-2015 will be the final year that employer contribution rates will reflect the market loss of 2008-2009,” DiNapoli said.
“There is no guarantee in life, but we now have had theoretically four straight years above the assumed rate of return,” said Sumberg, so the contribution rate from local governments is expected to stabilize, “and when we see next year’s return,” if the trend continues, the rate is expected to decline.
“There could be a slight increase next year, maybe a percent, and then less in the next couple of years,” said County Treasurer Felt.
One might think, with the record high levels we are seeing in the Dow Jones industrials average and other securities indices, that there should be an immediate reduction in the pension bills governments are paying.
So why haven’t the county’s pension bills gone down already?
Felt and Sumberg both pointed to the fund’s policy of “smoothing.”
The ups and downs of the market’s effects on the fund, they both explained, are evened out by averaging over five years, so while the big drop in the fund’s value happened in 2008-2009, and the payments required had been going up fast, it has not been as steep a rise as it might have been if a more immediate schedule were imposed; and while the markets have recovered nicely, the drop in payments will happen gradually.
But instead of just waiting for the payment requirements to decrease, Felt says the comptroller’s office is offering a plan where St. Lawrence County could save about $3 million next year in return for larger payments in ensuing years than might otherwise be needed.
“The current rate is about 20 percent of payroll going into the fund,” Felt said. “We think it will go up slightly next year, and in two years, it will be down to about 18 percent,” and the downward trend should continue, according to current estimates.
But under the comptroller’s new alternative, they will charge just 12½ percent a year for the next five years –“locked in, which will keep the contribution rate down, short term,” Felt said. But that also means that if the regular contribution rate would decline to 10 percent during the five years, the county would still pay 12½ percent.
“So we might be able to save on the front end, but pay more later. Counties that are more financially stable will probably turn it down and ride it out,” Felt said.
He said before he presents the plan to the county board, he would like to be able to tell legislators more about the plan, such as the chance that the comptroller could impose an interest charge on the money “saved” in the first years of the plan.
“There are still too many unknowns,” Felt said. “The details are not clear, so I can’t recommend it to the board yet.”