New York State Comptroller Thomas DiNapoli said he expected to lower the 7.5% return assumption for the state’s retirement system, after a yearslong rally in stocks and other assets.
A five-year review of New York State Common Retirement Fund’s investment target is scheduled to be completed later this year. The last time New York State Common lowered its return assumption was September 2010 when the target dropped to 7.5% from 8%.
“There’s a good chance we’ll be below 7.5% in a couple of months when we complete that review,” Mr. DiNapoli said. He made his remarks at a Manhattan event sponsored by nonprofit The Common Good and moderated by Bank of America Merrill Lynch prime brokerage executive Omeed Malik.
New York State Common is one of the country’s largest public retirement plans, with roughly $182 billion under management. It manages money for more than 1 million current or retired state employees, police officers and firefighters.
Around the U.S., some public pension funds have scaled back their return goals while others have been criticized for clinging to investment assumptions that might be unrealistically high. The median state pension plan assumes a rate of return near 7.65%, according to consulting firm Wilshire Associates.
Pension funds use the investment targets to calculate the present value of future obligations owed to retired workers and determine contributions from taxpayers and employees. Reductions in the target rate can sometimes force participants to increase their contributions to make up the difference from lower investment returns.
Compared with many peers, New York State is in relatively good shape. Its so-called funding ratio, which measures how much it has set aside for future retirees, is over 90%, compared with 80% for the average state-sponsored pension plan tracked by Wilshire.
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Separately, Mr. DiNapoli said New York State Common would leave its allocation to hedge funds mostly unchanged. He said it was unfortunate that many hedge funds have a negative reputation, particularly in light of the California Public Employees’ Retirement System’s decision last year to shed its entire $4 billion hedge-fund portfolio.
“We don’t view hedge funds as the place to get returns on steroids,” Mr. DiNapoli said.
Write to Rob Copeland at rob.copeland@wsj.com
