New York University (NYU) has issued a report saying the New York City Teachers’ Retirement System’s (TRS) funding concerns, which are being amplified through the economic distress caused by the COVID-19 pandemic, threaten to become a significant stimulant to a “fiscal and political crisis” in the city.
NYU claims that two distinct attributes of the TRS—a relatively conservative contribution policy, whose rates rise when the pension’s funding ratio falls, and a Tax-Deferred Annuity program—pose a great risk to the city.
The basis for the report was the extreme volatility in public exchanges caused by the pandemic, the effects of which would be magnified by the two aforementioned qualities of the pension, which was last reported to be approximately 74% funded.
TRS’ Tax-Deferred Annuity program pays out a fixed rate of return, typically set at 7% by the state legislature, backed by the defined benefit pension fund and subsequently taxpayers and the city budget. If, in any given year, the pension’s actual return profile exceeds the 7% target, the excess funds above the rate are housed within the pension system.
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This article republishes selections from “Report: Virus’ Effect on NYC Teachers’ Pension Fund Poses Risk to City,” an article by Steffan Navedo-Perez for Chief Investment Officer, 4/9/2020.