Low pension return may $oak taxpayers

ALBANY -- State Comptroller Thomas DiNapoli revealed plans yesterday to slash the state pension fund's growth forecast for the first time in a decade amid growing concerns about exploding retirement costs.

The comptroller is considering cutting the $133 billion pension fund's expected rate of return to as low as 7.5 percent, DiNapoli spokesman Robert Whalen said, a move that could sock local taxpayers with hundreds of millions -- if not billions -- of dollars in new costs.

"It is likely that the assumed rate of return will be reduced," Whalen said. "You could see the writing on the wall with what was coming."

The rate has been locked at 8 percent since 2000, and DiNapoli's office had as late as June defended it as "the industry standard" despite warnings from budget hawks that the rosy number masked a looming pension crisis.

The comptroller was mulling an internal recommendation and could also peg pension growth at 7.75 percent when he makes a final decision next month, Whalen said.

Either way, the fund's expected rate of return would sink to its lowest level since 1985.

"It's just trading one economic fallacy for another," said E.J. McMahon, of the business-backed Manhattan Institute. "Do you know anyone not named Madoff who's willing to guarantee you a 7.5 percent rate of return?"

The seemingly subtle shift, however, could mean a big hit for local governments, which count pension payments among their largest expenses.

Before any change, local pension contributions were slated to rise from 7.4 percent of payroll this year to 11.9 percent next year.

"I'm sure it's going to be very significant," said Peter Baynes, of the New York Conference of Mayors. "Pension costs are already devouring budgets and driving up property taxes. It's only going to make matters worse."

For example, local governments are on the hook for an estimated $3.9 billion in pension costs next year under the current growth rate of 8 percent. Lowering the rate to 6 percent would increase the bill to $10.3 billion.

DiNapoli's Republican opponent, former hedge-fund manager Harry Wilson, advocates cutting the growth rate to 5 or 6 percent but says the comptroller should first act to prevent taxpayers from making up the difference.

"Mr. DiNapoli should be providing New Yorkers with the truth of just how big our pension hole is and what reforms can be put in place to manage that problem over time," Wilson said. "Instead, he just socks the taxpayers with the bill without any effort to deal with this massive problem."

DiNapoli's announcement came on the same day two leading pension experts released a nationwide study showing that state and local governments could be low-balling pension liabilities by more than $3 trillion.

The Northwestern University report found that taxpayers would still face a $1 trillion bill to cover retirements of public workers even if state legislators eliminated cost-of-living increases and raised the retirement age.

Retirement planning
State pension fund by the numbers

$133B Size of fund
8% Current rate of return
7.5% New rate mulled by Comptroller Thomas DiNapoli (pictured)
2000 Year rate was last changed
1985 Last time it fell below 8%
1M Pensioners covered by plan

brendan.scott@nypost.com