NYS lowers pension fund's rate of return to 7.5 pct

NEW YORK, Sept 2 (Reuters) - New York state's pension fund lowered its annual rate of return for investments by half a percentage point to 7.5 percent, one of several steps to cope with market volatility, Comptroller Thomas DiNapoli said on Friday.

The $124.8 billion fund, which lost 4.4 percent of its value in the quarter ended June 30, increased contributions to the fund for public employers, such as cities.

The average rate was raised to 16.3 percent from 11.9 percent for many civilian public workers; for the Police and Fire Retirement system, the rate will rise to 21.6 percent from 18.2 percent, the Democratic comptroller said in a statement.

"The markets are still recovering from the 2008-09 financial meltdown, and that recovery continues to be volatile," he said.

The comptroller, who stands for election in November, is the fund's sole trustee. The new rates were recommended by actuaries, whose findings he is legally allowed to either accept or reject. The changes are expected to cost public employers about $400 million.

Like many cash-starved states, New York is struggling to fund its public workers' pensions and health care costs.

The $200 billion California Public Employees' Retirement Fund, for example, may reduce its actuarial rate of return in December. It currently stands at 7.5 percent. For details, see: [ID:nN28220067].

The rising cost of benefits for public sector workers has become a flashpoint for public anger during the recession, and has become an election year issue in New York.

Harry Wilson, a Republican candidate for comptroller, told reporters on a conference call that New York's pension fund was underfunded by $30 billion to $80 billion.

The former hedge fund manager said the accounting standards public pension funds use are too lax, urging that they switch to the stricter rules used in the private sector, including rules governing present value discount rates.

"My whole background in the private sector was restructuring broken companies," he said. That included his role on the federal auto task force, where he helped devise new benefit plans for General Motors' [GM.UL] unionized workers.

Wilson called for a multi-decade solution to New York's "looming tax catastrophe."

Saying New Yorkers are already too highly taxed, he said that if elected he would give the governor and legislature a range of long-term solutions -- including switching to thrift plans, such as a 401(k)s.

DiNapoli Spokesman Dennis Tompkins said the comptroller stands by his office's projections and research.

The state uses a 12-month process that delves into a range of variables in addition to investment returns, including salary forecasts and mortality rates, he said. (Reporting by Joan Gralla; editing by Todd Eastham)