Market turmoil roils public pensions; taxpayers will be on the hook to make up losses

ALBANY — The state’s massive pension funds serving nearly 1.7 million public workers and retirees are expected to weather the turmoil in the stock market and the prospect of additional drops despite their substantial investment in stocks, according to state and national authorities.

But taxpayers could take a hit in 12 months, with how much depending on the scale of the losses. Taxpayers by law are on the hook to compensate for losses in stock investments to keep the public pension systems adequately funded to pay benefits.

The stock market this year has lost about 20% of value so far. The losses came after President Donald Trump threatened tariffs of up to 125% on foreign imports.

Public worker pension plans typically invest about 40% of their assets in stocks. The rest of their investments are in fixed assets, infrastructure, bonds, real estate, cash and other ventures.

"Obviously we’re down, everybody’s down," said state Comptroller Thomas DiNapoli, who manages the $273.4 billion state pension funds for most state workers, retirees, police and professional firefighters. "But we’re going into this well-funded, so we have plenty of money to pay pension benefits ... they should not be worried."

He said, however, that newer workers with 25 years to work before retirement may well worry about the longer-term economic damage and how that will impact pensions benefits by the time they retire.

The separate $148 billion New York State Teachers’ Retirement System serves 455,000 members. The fund’s board won’t deal with the losses or any new strategy until its meeting later this month, said spokeswoman Heidi Brennan. She said investments "are continuously reviewed and adjusted as appropriate" to "meet the retirement benefit payroll."

DiNapoli and Brennan said they haven’t yet calculated the losses. DiNapoli said that's because the market remains so volatile.

The teachers’ retirement fund depends on employer contributions from school districts as well as from workers and investments. While teacher contributions are based only on salary and years of service, the employer contribution can rise as needed to support the fund. And those costs can be passed on to property taxpayers.

The nationwide impact, however, is becoming clearer.

"Between April 3 and 9 this year, the 25 largest U.S. public pensions lost close to $200 billion, and close to $250 billion since the beginning of this year," said Olivia S. Mitchell, professor at The Wharton School at the University of Pennsylvania and executive director of its Pension Research Council.

Back in New York State, while public workers and pensioners may feel safe, taxpayers — many of whom are suffering deep losses in their private-sector retirement funds — will have to wait to see how much of a hit they for underperforming investments. DiNapoli has a year before he must again value the fund and determine if the costs state and local governments will pay more into the pension system.

"It sounds like DiNapoli is reassuring the wrong people," said Bill Hammond, of the Empire Center for Public Policy, a fiscally conservative think tank. "The state constitution guarantees the promised benefits of current workers and retirees regardless of what happens to the pension fund. The ones with cause to worry are state and local taxpayers, who are effectively required to make up any shortfall when the fund’s investments underperform — which seems likely given the gravity of recent trends on Wall Street."

History indicates that it takes time to recover from the damage.

For example, the Dow Jones Index and state pension records show that following the Sept. 11, 2001, terrorist attacks that drastically reduced the value of the stock market and the state employee pension fund, the market began to rebound by the end of 2003 and the pension fund rebounded by the end of 2004. After the Great Recession began in 2008, the stock market and pension fund began rebounding in 2009. Similarly, drops in the stock market in the depths of the COVID-19 pandemic that began in 2020 began rebounding in 2024, the records showed.

But DiNapoli said those economic disasters differ from today’s crisis, which complicates any recovery.

"I think what’s different is the Great Recession was part of an economic collapse," DiNapoli said. "COVID was a public health emergency. What’s different this time is it’s a self-inflicted wound created by the current administration’s tariff policy and how it’s upending the entire economic order."

Hank Kim, executive director the National Conference on Public Employee Retirement Systems, said huge pension plans like New York’s are investing for the long haul and don’t have to react "the daily vagaries of the market."

Workers and retirees in state and local pension plans "should feel confident ... they can depend on their benefits whether the market goes up or down," Kim told Newsday in an interview.

Some public pension funds facing big losses around the nation, however, are taking action.

California’s massive fund, for example, is taking advantage of stocks that dropped in price to bolster their portfolio. Others, such as New York, "are waiting to see if the market volatility is temporary and therefore not doing anything immediately," Mitchell, of the Wharton School, told Newsday in an emailed response.

But the experts said the critical unknown factor is how long the stock market will continue a downward spiral, which could force higher employer contribution by government employers as their tax revenues shrink.

"If the U.S. economy does head into a recession, which seems increasingly likely according to the forecasters, public plans would be further challenged by declines in tax revenue," Mitchell said. 

By Michael Gormley

michael.gormley@newsday.com@GormleyAlbany

Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.