Tuesday, January 28, 2020

Early Retirement for all NYCERS Tier-4 62/5 Plan Members, Including Vested Members

Recently a 55 year old Tier 4 NYCERS member told me that NYCERS had denied his retirement application. The resason that they gave him was since he was vested, he had to wait until he was 62 to retire. This reason is not currently supported by law.

Prior to 2000, this reason was valid. (See Section 612 (NYS - RSSL) below).

In 2000, however, the law was changed by Chapter 553 which was enacted as of 10/31/2000, The new law allowed most Tier 4 members to retire early subject scaled benefit reductions. See Section 603.1.2 (NYS RSSL) below. Specifically, as of October 31, 2000, Tier 4 NYCERS members who were not eligible for any of the following special retirement plans

  1. 1) 55/25 Plan (Chapter 96),
  2. 2) 57/5 Plan (Chapter 96), or
  3. 3) the Transit 25/55 Plan
were now entitled to apply for retirement starting age 55 through age 62 with varying levels of benefit reductions.

This statute does not require the member to be in city-service to be eligible to apply. Therefore all members, both in city-service and vested, are eligible. The technical term, “in city-service”, is used when meaning to indicate only members on payroll as opposed to vested members who, by definition, are not on payroll .

As executive director of NYCERS, this is the way I administered this benefit between 2000 and 2005.

I left NYCERS in 2005. Based on my experiences with helping NYCERS members since then, I have found NYCERS legal support to be incompetent and possibly intent on reducing members’ benefits without legal authority.

I have been writing this blog since 2009. It is a great vehicle for presenting information about the horrendously involved pension law which NYC workers have to deal with. I am always amazed that NYCERS does not attempt to communicate with its members through the internet. They could warn members of the pitfalls of the law by laying out in detail how the specific sections of law impact the members. The SPD's are very incomplete when it comes some of the dark corners of the law.

Considering how much money NYCERS spends, you would think that NYCERS would give detailed and precise explanations to members about its decisions, especially when denying benefits.

Teir 4: Relevant Statutes

Effective Sept. 1, 1983 and retroactive to July 1, 1976.

§ 612. Vesting.

a.

A member who has five or more years of credited service, upon termination of employment, other than a member who is entitled to a deferred vested benefit pursuant to any other provision of this article, shall be entitled to a deferred vested benefit at normal retirement age computed in accordance with the provisions of section six hundred four of this article.

As of October 31, 2000, the new Section 603.1.2 (reduction at 27% at age 55)
§ 603. Eligibility for service retirement benefits; age and service requirements.

… i. …

2. A member of the New York city employees' retirement system or the board of education retirement system of the city of New York who has met the minimum service requirement, but who is not

(a) a participant in the twenty-five-year early retirement program, as defined in paragraph ten of subdivision a of section six hundred four-c of this article (as added by chapter ninety-six of the laws of nineteen hundred ninety-five), or

(b) a participant in the age fifty-seven retirement program, as defined in paragraph three of subdivision b of section six hundred four-d of this article, or

(c) a New York city transit authority member, as defined in paragraph one of subdivision a of section six hundred four-b of this article,

may retire prior to normal retirement age, but no earlier than attainment of age fifty-five, in which event,

(this clause was added after 2000)

unless such person is a member of the board of education retirement system of such city who is otherwise eligible for early service retirement pursuant to subdivision c of section six hundred four-i of this article,

the amount of his or her retirement benefit computed without optional modification shall be reduced in accordance with the following schedule:

(i) for each of the first twenty-four full months that retirement predates age sixty-two, one-half of one per centum per month; and

(ii) for each full month that retirement predates age sixty, one-quarter of one per centum per month,

but in no event shall retirement be permitted prior to attainment of age fifty-five.

Tier 6: Cautionary Note

As of April 1, 2012, Tier 6 radically changed this early retirement benefit. The new law added the wording below to Sections 603 and 612. The result of which was to exclude Tier 6 vested members form the early retirement benefit, increase the normal retirement age to 63 for both in-service and vested benefits, and made the early retirement benefit reductions range from 6.5% at age 61 to 52% at age 55. I have highligthed the wording that restrict the benefit.

§ 612. Vesting.

a. …

Anything to the contrary notwithstanding, a member of a public retirement system of the state who first became a member of such system on or after April first, two thousand twelve must have at least ten years of credited service in order to qualify for a deferred vested benefit under this section; such member shall not be entitled to such benefit prior to the member's attainment of age sixty-three; and such deferred vested benefit shall be computed pursuant to subdivision b-1 of section six hundred four of this article.

§ 603. Eligibility for service retirement benefits; age and service requirements.

i. …

3. A member of a public retirement system of the state who has met the minimum service requirement, but who is not a New York city transit authority member, as defined in paragraph one of subdivision a of section six hundred four-b of this article, may retire prior to normal retirement age, but no earlier than attainment of age fifty-five, in which event, the amount of his or her retirement benefit computed without optional modification

shall be reduced by six and one-half per centum for each year by which early retirement precedes age sixty-three.

Sunday, January 19, 2020

History: NYCERS Admin Expenses

The following is a chart of NYCERS administrative expenses from 2004. The information comes from NYCERS Comprehensive Annual Financial Report. As a point of reference NYCERS had an annual budget of $8.8M in FY-1996, the last year NYCERS was part of the city budget.

NYCERS Admin Expenses
Fiscal Year Personnel Expenses Contracts & Consultants Phone, Mail, & Printing Rentals Software, Hardware, Support, Supplies, & Maintenance Depreciation & Credits Total
FY-2019 $43,717,712 $15,884,418 $1,114,263 $6,637,959 $14,719,873 $0 $82,073,325
FY-2018 $40,444,145 $4,310,427 $1,072,077 $6,348,888 $7,513,233 $0 $59,688,770
FY-2017 $39,505,894 $3,829,758 $1,561,282 $5,909,352 $8,864,342 $0 $59,670,628
FY-2016 $37,950,289 $4,687,929 $1,360,397 $5,453,383 $7,230,989 $0 $56,682,988
FY-2015 $37,368,409 $3,652,,154 $1,336,002 $5,037,893 $7,239,560 $0 $54,635,018
FY-2014 $33,571,938 $3,773,082 $1,269,387 $4,863,720 $6,952,691 $0 $50,430,818
FY-2013 $33,064,087 $3,102,385 $1,078,411 $4,674,442 $6,797,095 $0 $48,666,420
FY-2012 $32,623,085 $3,088,256 $1,096,186 $4,796,584 $9,780,637 $0 $51,384,748
FY-2011 $31,748,443 $4,108,186 $995,415 $4,741,621 $4,780,811 $0 $46,374,476
FY-2010 $31,527,659 $5,434,495 $1,041,471 $4,278,903 $6,678,071 $715,000 $49,675,599
FY-2009 $30,187,604 $4,043,775 $914,311 $4,047,949 $8,198,354 $1,430,000 $48,821,993
FY-2008 Not Reported
FY-2007 $27,123,219 $2,677,793 $1,055,233 $5,203,902 $4,205,095 $1,430,000 $41,695,242
FY-2006 $24,992,543 $3,124,688 $1,497,895 $4,797,895 $4,472,246 $1,406,132 $40,291,469
FY-2005 $24,474,710 $3,039,970 $827,277 $4,454,258 $3,118,356 $1,392,296 $37,306,867
FY-2004 $22,631,504 $3,124,800 $845,391 $4,192,543 $3,375,187 $1,430,000 $35,559,081

Monday, January 13, 2020

Sunshine and GASB 72

As of FY-2015 NYCERS was required to report a breakdown of the reliability of the reported value of the NYCERS investments. This reporting requirement is based on GASB Statement No. 72. GASB is the Government Accounting Standards Board, comparable to the private sector accounting board, FASB. You can see the history of NYCERS GASB 72 reporting in the table below.

NYCERS describes this requirement as follows:

GASB Statement No. 72, Fair Value Measurement and Application requires the Funds to use valuation techniques which are appropriate under the circumstances and are either a market approach or income approach. GASB 72 establishes a hierarchy of inputs used to measure fair value consisting of three levels.

Level 1 inputs are quoted prices in active markets for identical assets or liabilities.

Level 2 inputs are inputs, other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs, and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.

GASB 72 also contains note disclosure requirements regarding the hierarchy of valuation inputs and valuation techniques that was used for the fair value measurements. There was no material impact on the funds financial statements as a result of the implementation of GASB 72.

In plain English, Level 1 is based on price quotes for stocks published on the public stock exchanges. This makes Level 1 assets very liquid. Level 2 is based on reported values for bonds and fixed income instruments. This level has market access but not as easy as Levl 1.Level 3 is based on estimates from the general partners of limited partnerships for non publicly traded investments. Level 3 has no real market access.

NYCERS makes no comment on the Net Asset Value group but it looks like this represents hedge fund assets that NYCERS is trying to clear off its books.

Level 3 is the most risky investment class, the most expensive to manage, least reliable and it appears the least productive.

In FY-2019 NYCERS paid the following investment management fees:

  1. $66.1M for Level 1 assets of which $26.5M was for foreign taxes.
  2. $20.3M for Level 2 assets
  3. $140.5M for Level 3 assets

Ranking of NYCERS Assets via GASB 72
Fiscal Year Level 1 Assets (in thousands) Level 2 Assets Levle 3 Assests Assets at Net Asset Value/td> Total
FY-2014 $27,028,432 $17,437,139 $10,642,729 $0 $55,108,300
FY-2015 $27,707,076 $17,175,757 $10,796,968 $0 $55,679,801
FY-2016 $27,330,534 $15,924,399 $10,377,791 $1,123,861 $54,756,585
FY-2017 $32,312,375 $17,461,428 $10,914,801 $95,987 $60,784,591
FY-2018 $31,219,885 $23,282,843 $10,880,803 $66,675 $65,450,206
FY-2019 $34,128,310 $22,782,825 $11,534,369 $6,979 $68,452,483

Thursday, December 19, 2019

Why Does NYCERS Take Six Months to Create a Retirement Option Letter

Update: 12/31/2019 - NYCERS spent $82.1M in FY-2019 on operating expenses, up from $59.7M in FY-2018.

In particular:
NYCERS Contract Expenses for FY-2019
Expense Amount
Gartner$1,665,620
CWI Coaching$185,000
Accenture$7,961,315
Blue Hill Data$1,124,800
22 various IT consulting firms$3,172,751
Software Licenses&Support$6,033,250
DP Equipment$4,521,706

When a NYCERS member is planning to retire, he/she usually visits the customer service center on Jay Street in downtown Brooklyn around 60 days before his/her retirement date. He/she files a retirement application and sits with NYCERS staff person to be briefed on the procedure.

One of the things the NYCERS agent does is give the member a printed estimate of the member's "maximum" retirement benefit amount along with reduced amounts for option selections for a given beneficiary. The estimate, however, is not adequate to allow a member to make an informed option selection.

Choosing an option rather than a maximum benefit, allows a member to leave continuing benefit to a designated beneficiary after the member dies.

With a maximum choice NYCERS stops payment of the full benefit amount when the retiree dies. If the member chooses one of the option amounts, NYCERS will continue to pay a benefit to the beneficiary that the member designated when he/she picked an option choice.

This maximum/option election occurs after the member receives the final option letter. The members has 60 days after the date of the letter to make his/her choice.

Currently, NYCERS is informing members that it will take about six months for NYCERS to send the member a final option letter on the annual retirement benefit along with the reduced amounts associated with option benefits that member can select in place of the full benefit.

As of 2005, NYCERS was quoting a three month period for sending a final option letter to members who were retiring.

Why this fall off in the service level?

As of 2020, NYCERS has an administrative budget of $81.1M and 476 employees (F/T, P/T, Per Diem).

In 2005, NYCERS had an administrative budget of $34.6M and 385 employees (F/T, P/T. College Aides).

As of August 8, 2018, NYCERS awarded a $14.8M contract to Accenture to install a customer relation management system (CRM). If you want to read the gory details, check the NYC City Record website for a Employees Retirement solicitation date 11/27/17, CRM.

A rough definition of a CRM system is as follows:

Customer relationship management (CRM) software is software that automates and manages the customer life cycle of an organization. It is usually used by the sales team, sales reps, and call center reps to maintain contact with customers and quickly respond to their needs.

You might think that this project would help with improving the service that NYCERS is trying to give retiring members. This contract had a one year implementation term with 3 years of maintenance and three one year renewal options. With this effort members should be seeing improved service since the one year was up as of August, 2019. Of course the project is late.

Wednesday, September 18, 2019

Update on Nespoli Case - Attack on Sanitation Workers Pension Rights - 2019

December 16, 2019: still no action from the trial court, three years later.

Update: On July 1, 2019 after a year and half delay the court scheduled a settlement conference for August 7, 2019. On August 2, 2019, Corp Counsel submitted a written request for a delay until after September 3, 2019 due to his vacation schedule. This case is almost three years old having started in November 2016. The court has yet to schedule a new date.

Perviously I have written about the Nespoli case dealing with NYCERS's attempt to force Tier 4 NYCERS members into the Tier 6 Sanitation Plan when they were appointed as Sanitiation workers. This legal action started on November 15, 2016.

Finally on Jan 22, 2018, NYCERS provided a written argument attempting to justify its position. On February 23, 2018 Nespoli was able to rebut NYCERS's flawed logic. I consider NYCERS's arguments particularly dishonest and lame.

You can read both arguments on the NYS Court Scroll web site referring to the folllowing Index# 159601-2016 for NY County.

Saturday, August 3, 2019

The FY-2020 Budget and the Legacy Replacement Project

On April 11, 2019 the NYCERS Board of Trustees adopted the agency’s new budget for FY-2020. After almost two months I was finally able to get the basic details on the FY-2020 budget. Wouldn’t be a great idea for NYCERS to store its administrative budget history on the NYCERS website? I’m afraid that will never happen. NYCERS has even dropped the two year history of its financial reports and only keeps the current CAFR online.

The total (PS & OTPS) budget increased from $77.1M to $81.1M, a 5.2% increase.

  • The full time head count increased by 5 to 433.
  • The part-timers increased by 8 to 43.
  • The number of consultants is approximately 39.
  • The PS budget is $35.3M.
  • The OTPS budget is $45.9M.
  • The fringe benefit budget is $10.7M.
This is a significantly smaller increase than what the trustees approved for FY-2019 which went from $53.5M to $77.1M. That was a 44.1% increase. The FY-2019 increase was driven primarily by the cost of the customer relationship software (CRM) contract that NYCERS granted to Salesforce. Of course there was the $2.5M cost for renovating the 23rd floor. As a point of reference the 23rd floor was totally built from scratch in FY-2000 as part of a complete office build out in brand new office building.

Based on a statement by the Chairperson, the $81.1M total is only an interim amount. The executive director will be proposing a mid-year increase to cover the cost of an expected contract that will result from a pending RFP for the Legacy Replacement Project (LRP). The closing date for this RFP is July 15, 2019. NYCERS, however, is projecting to not sign a contract for the project until April-May of 2020. So the full annual cost of the LRP will not hit the FY-2020 budget.

NYCERS staff originally presented the LRP concept to the trustees in the spring of 2015. It was supposed to be a five year project running from FY-2106 to FY-2020. The NYCERS total budget in FY-2015 was $47.3M. It is now $81.1M. Based on NYCERS own projections it will be $123.2M next year.

NYCERS finally released the RFP for this project in December, 2017. It was withdrawn because of low vendor response and reissued again in April, 2019. NYCERS has planned to take about 9 months to evaluate the RFP and negotiate a contract. With a start date in the spring of 2020 and projected five development cycle, the project should be completed in the spring of 2025, ten years after it was conceived. It is possible that the selected vendor will complete the work in less than five years but that is not likely.

My estimate of the total cost of this project from FY-2019 to FY-2025 will be at least $390M.

The actual and projected OTPS budget amounts for FY-2018 to FY-2024 as stated by NYCERS are as follows and this list does not included the planned fifth year of LRP contract, 2025.

  • 2018 - $20.9M (actual)
  • 2019 - $43.5M (actual)
  • 2020 - $45.9M (approved)
  • 2021 - $88.0M (projected)
  • 2022 - $88.9M (projected)
  • 2023 - $89.8M (projected)
  • 2024 - $90.5M (projected)

What is worth $390M? What significant benefit justifies this enormous cost?

And what about the risk that it fails? NYCERS is putting in place a huge oversight structure which is a big part of the project’s cost, but will the trustees have the nerve to pull the plug if things go bad?

Friday, July 26, 2019

Private Markets: Legalized "Theft" - Unreported $129M in Incentive Fees

NYCERS issues a Comprehensive Annual Financial Report (CAFR) every December. This report is suppose to be a accurate picture of the financial information for NYCERS during the previous fiscal year (July-June). The FY-2018 report stated that total investment expenses was $241.8M and as part of that amount the private market investments expenses were $130.0M as listed in the first chart below:

In contrast to the CAFR statement prepared by the outside accounting firm, the Comptroller in September, 2018 released a FY-2018 performance report prepared by State Street. On page 27 of that report State Street lists the expenses for private market investments. You can see in the second chart below that the total fund investment fees were $346.03M and as part of that amount private market fees were $272.45M.

The $346.03M does not included foreign taxes ($26.M), payments to the Comptroller ($4.2M), payments to consultants & law firms ($4.2M), and miscellaneous expenses ($2.1M) which are included in the CAFR's $241.8M expense amount.

For many years NYCERS has not defined the term "Organization Costs". The Comptroller, however, uses a different term for these costs, "Partnership Expense". I now suspect that the term means meals, travel expenses, and any other expense that the general partner can pass along to the limited partners.

But what is more disturbing is that there are incentive fees listed by the Comptroller. The total for these fees are $129.51M . These fees have never been listed in the NYCERS CAFR. This is the main reason that that the Comptroller is reporting $346M and NYCERS is only reporting $242M. There is obviously a serious flaw in NYCERS accounting. And by the way, what managers are being paid the incentive fees? Why are they being paid these fees?

As a closing comment on this obscene waste of money, lets simplify the problem:

  • NYCERS pays private market partnerships $272.45M in fees for handling assets with an "alleged" value of $9.95B,
  • while it pays only $73.58M in fees to public market managers for handling assets with open market value of $52.75B.

NYCERS Asset Class & Fees from CAFR
Private Market Asset Class End of Year Asset Value Fees Organization Costs Total Expenses Basis Points Rate of Return
Private Equity $4,470M $50,117,502 $13,064,536 $63.18M 141.2 17.8%
Opport.& Global FI $1,851M $15,534,877 $1,820,851 $17.35M 93.5 7.0%
Real Estate & Infrastructure $3,792M $40,993,082 $9,510,109 $50.50M 133.2 12.19%
Hedge Fund $68.0M $345,733 $0.35M 50.843 8.43%
Totals - Private Markets $10,181M $131.48M
Totals - All Classes $65,206M $241.8M

--------------------------------------------------------------------------------------------------------

NYCERS Asset Class & Fees from Comptroller's September 30, 2018 Performance Report
Private Market Asset Class Avg. Asset Value (billions) Management Fees (millions) Partnership Expenses (millions) Fees&Expns-Basis Points Incentive Fees (millions) Incentive Basis Points Total Fees (millions) Total Basis Points
Hedge Fund $0.075 $0.550 $0 72.0bp $0 0.0bp $550.03 72.0bp
Private Equity $4.432 $51.02 $17.51 154.64bp $88.03 198.63bp $156.57 353.26bp
Real Estate $3.349 $33.10 $8.497 124.21bp $31.66 94.53bp $73.26 218.74bp
Infrastructure $0.328 $8.433 $3.098 128.69 $0.863 28.31bp $12.394 138.32bp
Opportunistic Fixed Income $1.763 $15.578 $10.615 148.57bp $3.482 19.75bp $29.673 168.32bp
Private Market Assets Total $9.947 $108.99 $39.72 149.19bp $124.04 124.69bp $272.45 273.88bp
All Assest Total $62.699 $176.80 $39.22 34.43bp $129.51 20.66bp $346.03 55.19bpbp