TRS works similarly. “The district’s contributions are really based on compensation — it’s based on salary, and we pay, for this year, 16.25 percent of every dollar they earn,” said Robert Bartels, assistant superintendant of business. “So if an employee makes $100,000 for next year, the district would pay $16,250.”
Why have costs risen so much in the past few years, and when can we expect them to go down again?
Public retirement funds are heavily invested in the stock market, and as such are subject to Wall Street’s ups and downs. Before the 2008 stock market crash, New York’s retirement systems collectively owned billions of dollars in assets. However, during the subsequent recession, funds dropped significantly. In order to compensate for this loss, the ERS and TRS were forced to increase contributions from employers — which required local governments and school districts to raise taxes in order to meet these new standards. The total value of the assets held by each system are only now returning to the levels they were at before the 2008 crash.
“From what we understand, rates are determined on a five-year average based on return,” said Bartels. “When the system makes less than what is expected, our contribution rates go up. That’s reflected in this year’s 4.41 percent increase. But we believe they should improve, if not next year, then the following year.”
According to Sumberg, public retirement systems determine employer contribution rates primarily by assessing investment returns from over the prior five years.
“We assume that over a long term horizon we will make 7.5 percent,” Sumberg said. “In 2008 and 2009, the market was at its lowest point, minus 34 percent, and that return has been incorporated into each successive year. We estimate that the 2016 bill will be the last bill to incorporate the 2008 market loss. That doesn’t mean rates will plummet next year, but it does means that recently we’ve had years that were positive, and we’re on our way to recovery.”
In future years, if there is continued growth in retirement system assets, employers will see rates begin to decline.