With the Dow Jones Industrial Average dropping nearly 600 points Monday, the stock market is continuing a plunge that started last week. Some investors are now worrying that a sustained period of market growth may be coming to an end. And with state and city pension funds also investing in the stock market, State House Reporter Zack Fink takes a closer look at whether the retirement funds of government workers are safe.
New York City's pension funds include retirement accounts for firefighters, police officers, teachers and others. They are valued at roughly $165 billion, with 34 percent of assets are invested in the stock market.
The state's common retirement fund for state workers is valued at $183 billion, one of the largest pension funds in the nation. Thirty-seven percent of its assets are in the market. State Comptroller Tom DiNapoli spoke about the stock market drop and what it means for workers' retirement money in a radio interview Monday.
"The reality is, we have many months before we are going to know what our return number is for 2015/2016. So, as I have often said, we are not day traders with the pension fund. We don't like a roller coaster going down like we are seeing this week, but there is no immediate impact on the fund," he said.
This year, the state pension fund has projected returns of 7.5 percent per year, and that is calculated at the end of the fiscal year on April 1s. But some individuals who may plan on retiring soon worry about shorter term market losses.
"Well it becomes a little bit different if one is nearing retirement, because they are actually going to start drawing from that money. However, while in retirement, they could be living another 40 years," said Sam Stovall of Standard & Poor's.
When the financial crisis hit in 2008, many pension funds that had invested heavily in the market lost 30 percent of their value, and in some cases, much more. Those who were nearing retirement suddenly had to make other plans.
"There is a separate whole academic debate about whether pension plans of any kind should be investing in the stock market because of this kind of volatility," said Lawrence White, a professor at the NYU Stern School of Business.
Market watchers and seasoned investors say the best strategy is to diversify investments, which both state and city pension funds have done.
"You need to have a diversified portfolio with equities, with bonds, with cash that really looks to address your age, your requirements and your risk tolerance," Stovall said.
City Comptroller Scott Stringer was unavailable for comment.