The city has set aside an extra $600 million to pay for a bruising pension bill that’s coming due because people are living longer while investment returns are getting smaller, according to city officials.
Mayor Bloomberg has already allocated $7.4 billion to fund the city’s five pension systems next year, up a worrisome 13 percent from the $6.6 billion being spent this year. When Bloomberg took office in 2002, taxpayers contributed just $1.3 billion toward the pensions of city workers.
But officials had to reserve the additional $600 million because the city’s actuary, Robert North Jr., is completing an analysis of an “experience study” that will almost certainly show retirees are living longer.
That means they’ll also be collecting retirement checks from the city longer.
“It’s unsustainable,” one fiscal monitor said of the explosive growth.
At the same time, officials expect North to lower the 8 percent rate of return now projected for the $105 billion pension systems.
“Every quarter-point he reduces it costs more than $250 million, and it’s cumulative. So a half point would be more than $500 million,” explained one official.
That money has to be paid up front.
Most other major retirement systems have already abandoned the 8 percent return rate as unrealistic in the current economy, where the yield on 30-year Treasury bonds was only 4.27 percent on Friday.
Chuck Brecher of the Citizens Budget Commission applauded the city’s action as “prudent.”
“This is the reality of having a system controlled by the Legislature that mandates what the city should spend,” he said.
Although city taxpayers have to pick up the bill, it’s the state Legislature that dictates the level of pension benefits. North didn’t return calls to explain when he might issue his findings.
Doug Turetsky of the Independent Budget Office said the pension system is so complicated that the cost to recalibrate it isn’t easy to forecast.
“It’s hard to predict how these studies will turn out,” he said. “There are a lot of moving parts.”
In an attempt to pressure municipal unions to accept lower pensions for new hires, the mayor has included no raises for current city workers in his 2011 budget.
Bloomberg pointed out that fringe-benefit costs now average 75 percent of salaries — 100 percent for the uniformed forces and 50 percent for civilian workers — and are running away from the cost of running the rest of the government.
Brecher said unions have acceded to lower pensions only during times of fiscal crises, such as in the 1970s, when a second retirement tier was added for new employees to replace what was widely considered an overly generous plan known as Tier 1.