Governments in New York state have received some bad news regarding their 2021 budgets — pension contributions will be going up.

The state and Local Retirement System has announced employer contribution rates for the 2021-22 fiscal year will increase from 14.6% to 16.2% of payroll for the Employees’ Retirement System and from 24.4% to 28.3% of payroll for the Police and Fire Retirement System.

The state retirement systems made up of the two systems, which pay service and disability retirement benefits to public employees and death benefits to their survivors.

“Employer contribution rates have gone down or remained relatively flat for several years, but demographic changes, such as longer lifespans, and market volatility are nudging up rates,” said state Comptroller Thomas P. DiNapoli. “As the COVID-19 pandemic continues to create uncertainty in the financial markets and hurt Main Street, we are fortunate that our state pension fund entered this uncertain time as one of the strongest and best funded in the nation. We manage the fund to withstand tough challenges so that our public workforce can be confident their retirement benefits are secure. Keeping the plan well-funded has helped improve New York’s credit rating and avoided the budget problems faced by states with poorly-funded pensions.”

Employer rates are determined based on investment performance and actuarial assumptions recommended by the retirement system’s actuary, who is required to complete an annual report. The recommendations are reviewed by the independent Actuarial Advisory Committee and approved by DiNapoli. Rates for ERS and PFRS will increase 11% and 16%, respectively.

The actuary found that retirees and beneficiaries were living longer and that members are retiring at a higher percentage than projected. These demographic factors, combined with slightly lower than expected investment results averaged over the last five years, were the primary factors that led to an increase in the rates. The actuary cautioned that economic turmoil and extraordinary uncertainty in 2020 could further impact assumptions and rates in the future.

The assumed rate of return will remain at 6.8%, with the actuary recommending a review of the assumed rate of return next year. In 2019, DiNapoli lowered the state pension fund’s assumed rate from 7% to 6.8%. This is the third time he has lowered this rate since becoming comptroller. In 2010, DiNapoli decreased the rate from 8% to 7.5% and in 2015 to 7%. The median assumed rate of return among state public pension funds is 7.25% as of July 2020, according to the National Association of State Retirement Administrators. Only 24 of 130 major public funds are below 7% for their investment return assumptions.

DiNapoli also announced the funded ratio of the state pension fund is 86.2%. In June, the Pew Charitable Trusts ranked it the second best-funded pension fund in the nation. A strong funding ratio means state retirement system has the money available to pay out retirement benefits to its more than one million active state and local government employees, retirees and their beneficiaries.

In 2012, DiNapoli began providing employers with access to a two-year projection of their annual pension bill. Employers can use this projection in the preparation of their budgets. Projections of required contributions vary by employer depending on factors such as the types of retirement plans they adopt, salaries and the distribution of their employees among the six retirement tiers.

Payments based on the new rates are due by Feb. 1, 2022, but employers receive a discount if payment is made by Dec. 15, 2021.

There are more than 3,000 participating employers in ERS and PFRS, and more than 300 different retirement plan combinations. Last fiscal year, $13.25 billion were paid out in benefits. About 79% of retirees and beneficiaries live in New York.