The New York City Teachers’ Retirement System

Fiscal Issues and Risks

+ Donald Boyd


Marron Collaborators  Don Boyd*, Gang Chen*, and Yimeng Yin* examine fiscal issues and risks related to the New York City Teachers’ Retirement System (TRS). TRS is the second-largest of New York City’s five major retirement systems, as measured by assets. City contributions to TRS were approximately $3.7 billion in 2018, or 6 percent of tax revenue.

TRS has two important characteristics that set it apart from most other public pension plans in the nation. First, like other New York City pension plans, its contribution policy is more conservative than the typical public plan in the sense that city contributions rise relatively rapidly in response to investment shortfalls. This protects the solvency of the pension plan. The trade-off is greater risk to the city budget of sharp contribution increases in short time periods, relative to other commonly used contribution policies.

Second, in addition to their regular retirement benefit TRS members may contribute to a Tax-Deferred Annuity (TDA) program that offers guaranteed fixed returns backed by the defined benefit pension fund and thus by city taxpayers. The guaranteed rate for most members is 7 percent, set by the state legislature. It is well above guaranteed fixed returns that may be purchased in the private market, which are currently around 2 to 2.5 percent or less. TDA assets are invested by TRS along with regular defined benefit pension assets. The guarantee provides valuable benefits to plan members but creates special risks to the city. It does not have the constitutional protection that the regular retirement benefit has and therefore is more directly under the control of state and city policymakers.

If TDA assets earn more than the guarantee, the additional earnings accrue to the TRS pension fund, keeping city contributions funded by taxpayers lower than they otherwise might be. If TDA assets earn less than the guarantee, the pension fund must make up the difference, increasing costs to the city and its taxpayers. 

Stock market declines of recent weeks due to COVID-19 illustrate the potential risk to city taxpayers. If TDA assets fall short of the guarantee by 10 percent - for example, if TRS were to lose approximately 3 percent in 2020 -- then TRS will have to make up the difference. TDA had approximately $25 billion of assets at the end of 2019, so this would mean a guarantee payment of approximately $2.5 billion, ultimately funded by city taxpayers.

City policymakers need to understand the risks that City pension funds create, and make informed decisions about those risks. This report provides valuable information that will help them understand those risks.

* State and Local Government Finance Project, The Center for Policy Research, Rockefeller College, the University at Albany.

Read The Report


Donald J. Boyd is a collaborator at the NYU Marron Institute, and co-director of the Project on State and Local Government Finance at Rockefeller College.

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