There’ll be extra pressure on local government and school budgets in 2011.
The share that local governments, and thus, taxpayers, pay into the retirement funds of their public employees is going up sharply. The retirement fund used my most state-system retirees will require local governments to pay 11.9% of the tab in 2011, up from 7.4% for 2010. And the fund for police and fire retirees will require an even bigger contribution, 18.2%, from 15.1% in 2010.
Because employee salaries are often the largest portion of a government or school budget, the increase will force local governments to make hard choices about cutting services or jobs to make up the difference.
The cause of this financial distress is the collapse of the stock market in 2008 and early 2009. Pension funds are invested and all investments saw very large decreases.
The rates are set ahead of time to give local governments time to plan for them. They’re based on a three-year rolling average, which is why the Wall St. meltdown of 2008-09 is not showing up in reimbursement rates until 2011.
Ã¢â‚¬Å“While the pension fund has handled the market collapse better than most other public funds, there is no question that itÃ¢â‚¬â„¢s been hit by the crumbling economy,Ã¢â‚¬Â State Comptroller Thomas P. DiNapoli said. His office sets the contribution rate each year. Ã¢â‚¬Å“The Retirement SystemÃ¢â‚¬â„¢s Actuary has determined that employer contribution rates have to increase.”