U.S. default could hurt city's pension fund

COULD Washington's debt-ceiling crisis prove deadly for the city's underfunded pension fund?

That was the debate yesterday at a meeting of the city's Board of Pensions and Retirement, during which members questioned the fund's chief investment officer about what strategy to take as lawmakers in Washington teeter on the brink of a default and face a downgrade of the federal government's credit rating.

"The issue is, are we at the beginning of a decline like in 2008?" asked Controller Alan Butkovitz.

How the debt-ceiling negotiations will play out in Washington remained unclear yesterday. But if the government defaults or the U.S. credit rating is downgraded, the investments of the $4 billion pension fund - which has just 47 percent of the assets needed to pay projected benefits - would likely take a hit. The amount the fund has invested in U.S. Treasury bonds, which would decline in price if there were a default or rating downgrade, was unavailable.

In 2008, the pension fund lost more than 20 percent of its value when the real-estate bubble burst, sinking the stock market. The city was forced to put more money in the fund and cut firefighters, libraries and pools.

Sumit Handa, the pension fund's chief investment officer, said managers overseeing the investments have been seeking to reduce risk, though he said there was no truly safe path. Staying on course could be dangerous, and getting out of investments would prove costly.

The board decided to stick with the current investments for now. Finance Director Rob Dubow said the city must deal with uncertainty for the time being.

"There's nothing we could do now that is risk-free because there is no way to tell how the situation will play out," Dubow said.