New York Comptroller Thomas P. DiNapoli yesterday announced that he would lower employer contribution to the state’s $154.5 billion pension fund in fiscal 2009 due to returns that exceeded targets.

The Common Retirement Fund, of which the comptroller is sole trustee, serves all state and local government employees, except those in New York City, through the Employee’s Retirement System and the Police and Fire Retirement System. The employee system contributions will be lowered to an average rate of 8.5% of payroll from 9.6% in fiscal 2008, and the rate for the police and fire system contributions will be lowered to an average rate of 15.7% from 16.6%.

“We have one of the lowest contribution rates in the nation,” DiNapoli said in a recorded statement. “State and local governments will contribute at a lower rate while the retirement fund remains one of the best-funded in the United States.”

The pension system is funded at 104% of its projected liabilities and it posted a 12.58% return on its investments in fiscal 2007, well above its 8% target, according to the comptroller’s office. In and of itself, the contribution reduction won’t affect ratings, aaid Fitch Ratings senior director Jessalynn Moro.

“What it essentially means is for fiscal 2009 local governments will have some budgetary savings,” Moro said. “In general the savings will be nominal for each issuer, but given the strict environment in which New York local governments operate – i.e., a high fixed-cost burden – any reduction in expenditures is certainly a positive.”

The pension fund currently has 662,633 members for whom government employers pay into the system and 350,066 pensioners and beneficiaries who receive benefits. During fiscal 2007, 3,010 state and local government employers contributed $2,7 billion into the system, which will pay out $6.4 billion in benefits this year, according to the comptroller’s office.

After a heated stock market in the 1990s gave way to a slowdown, former Comptroller Alan G. Hevesi raised local governments’ contributions from 1.5% of payroll costs in 2003 to 5.9% in 2004, then to 12.9% in 2005, to compensate for poor returns on fund investments.

“Our membership has been seeking this sort of relief for the last three years since the pension rates went up so dramatically,” said New York State Conference of Mayors and Municipal Officials executive director Peter Baynes. The conference is an organization representing city and town governments in New York. “Have the rates gone down far enough to make pension costs affordable to local governments? I wouldn’t go that far, but we’re very happy they’re going in the right direction.”

Erie County Comptroller Mark Poloncarz said this year’s rate reduction was good news, but the impact was still far off for the county, which expects to contribute $25 million to the fund in calendar 2007.

“It’s always good to hear that the state is lowering costs that the counties have to pay for,” Poloncarz said. “Unfortunately, it’s not going to be until 2009, so it’s still going to another year before we do budgeting to be able to lower the overall amount, but it’s fair to say that any reduction in the amount of pension payments that the county has to make or any municipality will have to make, will certainly benefit that municipality.”

The announcement follows criticism in a New York Times editorial last month that called for any end to sole trusteeship of the pension fund and replacement by a board. Gov. Eliot Spitzer has yet to weigh in on the matter.

Spitzer “has said that the issue of having a single person as the sole trustee is an issue worth taking a hard look at, but he has not made up his mind on the subject,” said Spitzer spokesman Jeffrey Gordon.

DiNapoli defended sole trusteeship of the pension fund in a statement that said he had a 30-person professional in-house investment staff at his disposal, as well as outside financial advisers and four advisor boards. A sole trustee “adds a level of accountability that boards lack,” the comptroller said.

Copyright 2007 - The Bond Buyer and SourceMedia Inc.