Friday, January 29, 2016

Late Deposit Date for NYCERS January Pension Checks

NYCERS is making the EFT deposit for the retirees' January 31, 2016 pension checks on February 1, 2016. That is one day late. This is totally incorrect and will cause many retirees serious cash flow problems. The January 31 check represents payment for the month of January.

Guess what? When I got to the bank on January 30, the pension check had been deposited. NYCERS needs to update their chart.

The pension payments are due as of the last day of the month. If the deposit can not be made on that day due to banks being closed, the deposit has always been made properly on the day before, not the day after. On any given month the retirees have to wait until the end of the month to get the payments due for the days starting with the first day of that month. The check does not represent the following month's benefit.

NYCERS has no authority to delay the payment of pension benefits. NYCERS is in effect getting a one day loan of $250M for free.

The month of April is even worse. The EFT deposit date is May 2. That is two days late.

Someone might call this theft.

Wednesday, January 20, 2016

What's It Like Having Your Ex Working For You?

In November, 2005, Martha Stark and the other NYCERS Trustees knowingly hired a totally unqualified person off of Shelley Silver's staff to be the executive director of NYCERS. That person was Diane D'Alessandro.

On Monday, November 30, 2015, D'Alessandro hired a woman named Ellen Carton as a "deputy director" of HR at NYCERS. What is significant about this fact is that she was the domestic partner of D'Alessandro for over 18 years.

NYCERS's claims the relationship was legally ended in 2004. I am not sure how you end a domestic partnership as opposed to a marriage.

What rational chief executive hires her ex spouse as a senior HR manager for her organization? You would never hire your current spouse, never mind your former spouse. It is a mind blowing concept. The potential conflicts would make for a fabulous novel but not a well run organization. But, unfortunately, we all know we are not dealing with a well run organization.

It now seems that the NYC Department of Investigation is looking into this story.

Ms. Carton was appointed at a salary of $127,000/yr. There was no public posting for the position. NYCERS states that Ms. Carton is reporting to Ms. Vilma Ebanks, the deputy director of HR at NYCERS. It is unclear what Ms. Carton's HR qualifications are, if any. According to Carton her consulting practice had closed.

In May of 2014, D'Alessandro hired Ms. Ebanks as a "deputy director" of HR at a salary of $115,000. Again there was no posting for that position. Ebanks had worked at DC-37 for many years before moving to NYCERS. Fourteen months later, Ebanks salary was increased to $131,000.

On a side note, It appears that Ms. Ebanks lives with Michael Musuraca. For many years Musuraca represented DC-37 on the NYCERS Board of Trustees. He was on the Board in 2005 when the Board appointed D'Alessandro. In 2009 he went work for a private equity firm, Blue Wolf Capital, but not before he voted to hire Blue Wolf as private equity firm for NYCERS. Here is a little more background on Blue Wolf.

Both of these hirings follows the same pattern that D'Alessandro used when she hired Diane Bratcher.

As of June 30, 2015, the NYCERS HR division was a direct report to the executive director, Diane D'Alessandro. This has been the case since 1998 when I first created the HR division. As of June 30, 2015 Ms. Felita DiLorenzo (aka Baksh/Ramsami) was running the HR division and reported to D'Alessandro.

NYCERS now claims that Ms. Ebanks is the HR director and reports to Ms. Chiarello, the NYCERS deputy executive director. That is the number two person in the agency.

As part of this story, in July of 2013, NYCERS entered into a contract with a small two person firm out of Tempe, AZ. The name of the firm is CWI Coaching & Consulting. The principals of the firm are Bruce and Kathleen Clark. Ms. Clark is the main contact with NYCERS. It is unclear how CWI was chosen to do whatever they are supposed to be doing for NYCERS. The original contract was for $80,000 but it was modified upwards during the year to $130,000.

Ms. Clark claims to have been introduced to Ms. Carton in NY in 2013. Based on Ms. Clark's response to whether D'Alessandro introduced the two, it is reasonable to assume that D'Alessandro made the introduction.

Shortly after that Ms. Carton started working with Ms. Clark on the NYCERS project. That may have the reason for the budget modification.

NYCERS actually paid CWI $129,736 in FY-2014 and $99,965 in FY-2015.

Going forward NYCERS has an open contract with CWI for the FY-2016 through FY-2018 period. The quoted cost for FY-2016 is $140K,000, for FY-2017, $161,000, and for FY-2018, $185,000.

Based on a December 10, 2015 Board of Trustees presentation by the IT deputy director, Liz Reyes, CWI appears to be a big player in the $132M Legacy Replacement Project. Needless to say, Reyes is in the same boat as D'Alessandro.

Renewal of the Lease for the NYCERS Disaster Recovery Site at Long Island City

In late spring of 2006 NYCERS signed a ten year lease for a disaster recovery site in Long Island City. It comes up for renewal this year.

As of today NYCERS still does not have a Certificate of Occupancy for the site. This means that there has never been a full fledged test of a recovery plan since legally workers are not permitted on the site. I have no idea how NYCERS can safely run their file backup system at this site when there is no permanent staff at the site. As far as I know there is no plan B.

NYCERS has an option to renew the lease for up to two five year periods.

What do you think D'Alessandro will do? What do you think the trustees will do?

Monday, January 4, 2016

NYCERS Investment Performance and Fees for FY-2015

As of June 30, 2014 NYCERS had a closing balance of $54,422.0M.

As of June 30, 2015, one year later, NYCERS had a closing balance of $54,889.3M

During FY-2015 NYCERS had revenue of $5,089.1M and expenses of $4,571.0M. That is a net inflow of $518.1M.

After the net inflow is subtracted from the June 30, 2015 closing balance, the adjusted FY-2015 closing balance is $54,371.2M. That is a decrease in assets for the year of $50.8M. This is essentially a no change in the value of the assets for the year.

During FY-2015, the S&P 500 index increased from 1960.23 to 2063.11 and the Barcaly's US Aggregate Bond Index increased by 1.86%. With a 70% stock/ 30% bond allocation, you should have had a target of 4.12% increase in assets for FY-2015.

At no point have the NYCERS Trustees made a public statement explaining why the fund performed so poorly or what they are going to do about it.

In conjunction with this poor performance NYCERS "reported" paying $231.8M in investment expenses for FY-2015. In FY-2014 NYCERS "reported" paying $184.6M. Listed below are the specifics of the $231.8M:

  1. $28.4M : general stock & bond managers
  2. $ 2.9M : Emerging managers - US equity
  3. $ 0.4M : Emerging managers - US Fixed inc.
  4. $ 7.0M : Junk bond managers
  5. $ 2.3M : Convertible Bond managers
  6. $40.4M : PE managers
  7. $12.7M : PE Opportunity & Global FI
  8. $31.7M : International Equity managers
  9. $17.8M : RE managers
  10. $39.8M : Hedge fund managers
  11. $ 3.5M : investment consultants
  12. $ 0.1M : legal fees (investment)
  13. $13.0M : PE organizational fees
  14. $ 5.1M : RE organizational fees
  15. $ 4.5M : PE Opp/Global organizational fees
  16. $15.5M : Foreign taxes
  17. $ 2.1M : Comprtroller's subsidy
  18. $ 4.5M : Miscellaneous

No one knows who the organization fees are paid to. That is $22.6M off into the great beyond.

Don't you wonder what the miscellaneous stuff was that the $4.5M bought?

What will the Comptroller's subsidy be in FY-2016 what with all the huge pay increase that the "investment" staff got in August?

This is all such obvious insanity. None are so blind as those who will not see.

Friday, January 1, 2016

Big Trouble with NYCEwork

On December 11, 2015 NYCERS filed a breach of contract claim against enChoice, a firm that NYCERS had hired in FY-2008 to implement a replacement system for its then current document imaging system. NYCERS is seeking $1,444,570 in damages plus interest and costs.

Last May I wrote about the lunacy at NYCERS when it comes to Information Technology (IT) issues. I particularly pointed out the serious problems that NYCERS was having with its new document management/workflow system. The following are NYCERS and my comments:

Comment from NYCERS:

RECENT HISTORY Over the past nine years, NYCERS has made significant infrastructure improvements. Document Management NYCERS continues to ensure the preservation and security of all vital records and to promote an environmentally sound approach to document management. This effort includes the incorporation of all incoming documents into the NYCEWORK system in an electronic format and the ongoing digitization of historical paper documents.

In 2014, NYCERS prepared, scanned and indexed over 200,000 incoming documents and converted over 1 million historical records into digital images. Since the inception of the document management project, over 38 million paper records have been imaged, saving approximately $600,000 in document storage fees.

My analysis:

From this quote you would think that document management was introduced during the last few years. In fact, it was there when D'Alessandro walked in the door. The system in place at that time used a software package called Staffware. It was working well but it was being stressed by the volume of documents that NYCERS was dealing with. It actually continued to function up until 2014 when a new software package, Filenet/NYCEWORK, was finally put into production. I wonder where the $600,000 in saved storage fees came from?

Unfortunately, while Staffware needed to be either upgraded or replaced, Filenet runs significantly slower than Staffware did. That in turn has created incremental delays at every step of every process in the agency. It has created havoc with the production levels for all major functions in the agency.

In FY-2008, NYCERS hired the company enChoice to do the upgrade. enChoice is an IBM partner specializing in implementing IBM's document management software, FileNet. NYCERS labeled the upgrade effort "NYCERwork". Over the next four years the NYCERS IT director, Liz Reyes, had enChoice working on this project.

NYCERS paid enChoice the following amounts:

  • $1,609,278 in FY-2008
  • $ 327,141 in FY-2009
  • $ 267,465 in FY-2010
  • $ 25,941 in FY-2011
Then, in NYCERS FY-2013 Annual Report, the agency's executive director, Diane D'Alessandro, made the follow statement:

NYCEWORK: A NEW DOCUMENT MANAGEMENT/WORKFLOW SYSTEM

NYCERS recognizes the imperative to update and link systems that process memberships, evaluate service, calculate pensions, and handle requests for account information as efficiently as possible. In June 2012, after extensive preparations, we launched NYCEwork, our document imaging and workflow system. NYCEwork maintains images of every document in a member’s lifecycle, beginning with the membership application and ending with the final payment of a retirement allowance to the member or survivor benefit to the designated beneficiary. In order to create a complete, imaged record and continue all of the ongoing work that business units handle, the IT team had to ensure that all active and closed work items and every relevant document were transferred from the outmoded Staffware system into NYCEwork, while at the same time accepting new forms and applications for the business units to process.

With the filing of the suit it is now clear to everyone that Reyes failed to properly manage the NYCEwork project.

What is really frightening about this failure is that the suit in no way fixes the problem. The day to day production problems are still there. There are threats to the integrity and security of the documents that have been committed to NYCEwork. Based on NYCERS claim to storage savings I have to asume the original documents have been destroyed. In addition, I know NYCERS's backup and recovery systems are totally ineffective.

And this is the management that wants to spend $132M over five years to do do an IT legacy upgrade.

The NYCERS trustees need to replace the senior management at NYCERS. If they don't, five years from now they will be looking at more breach of contract suits, more broken systems, a $132M in losses (if they are lucky), and five lost years.

Doesn't it ever occur to anyone that D'Alessandro worked for Shelley Silver before she came to NYCERS and that Martha Stark appointed her.

Note:

This is not the first contract suit that NYCERS has brought against an IT firm. At the same time enChoice was ramping up in FY-2008, NYCERS was also working with IBM ($2.36M over two year) to convert the NYCERS file system to a DB2 database system. Reyes again failed with this project and NYCERS subsequently sued IBM. Clevewrly IBM settled with NYCERS by giving them a 20% discount on the purchase of hardware and services capped at $1M for a fixed period. NYCERS was only able to utilize $250,000 of the discount before the time period lapsed. These girls are really on the ball.

What is clear is that over the last 10 years the NYCERS administration has failed to put in place a modern relational database system for its applications.

Monday, November 9, 2015

Changing Stories about the 2015 Pension Investment Fee Explosion

On Nov. 3, 2015 I pointed out the investment fee explosion for the five NYC pension funds and the Comptroller's lame comments about the fees and the miserable performance of the pension funds. I also made the comment that I suspected "the Comptroller's Office was in shambles when it comes to accurate records of the payment of investment fees."

On Nov. 4, 2015 the Comptroller was quoted in P&I with a new story about why the fees are so high. It's no longer that the assets have increased or that they are being more comprehensive. The following is the the new excuse.

“Since we started the hard work of reforming the investment environment 22 months ago, we've uncovered layer after layer of Wall Street fees,” city Comptroller Scott Stringer said Wednesday in an e-mail. Mr. Stringer is the fiduciary for the five pension funds that make up the $162.9 billion retirement system.

“In our review of this year's financial report we've found even more charges — millions of dollars in 'incentive fees' — that had gone largely unreported in previous reports,” Mr. Stringer added.

“While we believe we've captured the bulk of the fee data, we will continue to refine our reporting and transparency processes until we have a complete picture of all fees and expenses paid,” said Eric Sumberg, a spokesman for Mr. Stringer, in an e-mail. “The comptroller has made transparency and fee disclosure priority issues for his administration.”

It has been clear for years that the investment fee problem is out of control. $522M is an obscene amount to pay for investing the assets of the five city pension funds. In the past I have been clear that 10 basis points should be the target level for fees.

Now this year we learn that the situation is worse ($705M) and not totally nailed down.

The obvious questions are:

  • Now that the Comptroller has uncovered all these layers of fee, why hasn't he reported all the details?
  • How did the fees go unreported in the first place?
  • How were the unreported fees paid?
  • how would you describe the unreported fees?
  • Who received the unreported fees?
  • What are the dollar amounts of the fees and the recipients?
  • How do you know that you have found all the fees?
  • Are the fees necessary given the miserable performance of the managers?
  • How accurate is the 2014 CAFR which the Comptroller released last year?
  • In general how reliable are any of the figures that the Comptroller has reported? Maybe this why the NYS DFS can never get the pension audits done. The black hole is too deep.

The final and most crucial question is, will the Comptroller release all the pension investment contracts to the public or will he continue to keep them secret and hidden from the public in spite of the fact that they are paid with taxpayer and employee money? When a contract has a clause that is prohibited by law, the contract is void. Of course, one of the parties must take action to void the contract.

Note: For the record the five funds do not have $162.9B in assets. They have $145.7B as of June 30, 2015. The TRS & BERS TDA's have $28.9B and the Police, Fire, and Correction Force VSFs' have $3.8B. The TDA and VSF funds are not available for covering the pension liabilities of the five funds. The Comptroller's Office always likes to quote the combined amounts but it is not accurate.

Note: Comptroller Stringer has been a trustee of NYCERS since 2006. Of course, he is not the only trustee.

Tuesday, November 3, 2015

Bad Year for the NYC Pension Funds - FY-2015 - Investment Fees and Performance

The Comptroller released the NYC FY-2015 Comprehensive Annual Financial Report (CAFR) on Friday, October 30, 2015. The following are some points from the press release:

The City pension systems earned $4.746 billion in net investment income in FY15 and paid benefits totaling $13.4 billion during FY15. Employer and employee contributions to the City pension systems were $10.0 billion and $1.8 billion, respectively;

The City pension systems paid investment expenses totaling $708.9 million in FY15, an increase over FY14 that primarily reflects increased assets under management and more comprehensive fee disclosure and reporting;

These numbers are accurate but they are presented in a deceptive way.

The five funds received $1.94B in interest payments and $2.66B in dividends during 2015. They also earned $73M in securities lending income. That adds up to $4.67B. It does not take much skill to collect interest and dividend payments. It definitely does not take $708.9M in fees, a $183.0M increase from last year.

Listed below are the fees (pension funds only) for the last 14 years. You can see from the numbers that the "increased assets under management" comment is not valid. Of course previous reported fees may be inaccurate but that's not what "more comprehensive" means. I have a strong feeling that the Comptroller's office is in shambles when it comes to accurate records of the payment of investment fees.

  • Year: -- Fees ---- Assets
  • 2015: $705.0M ($145.7B)
  • 2014: $522.0M ($144.5B)
  • 2013: $472.5M ($124.8B)
  • 2012: $370.3M ($111.3B)
  • 2011: $395.7M ($111.0B)
  • 2010: $426.8M ($90.0B)
  • 2009: $339.3M ($79.5B)
  • 2008: $310.2M ($101.9B)
  • 2007: $262.0M ($110.9B)
  • 2006: $192.7M ($96.0B)
  • 2005: $158.2M ($90.6B)
  • 2004: $131.6M ($86.5B)
  • 2003: $ 96.7M ($78.1B)
  • 2002: $101.9M ($80.7B)

On July 30, 2015, P&I reported that the Comptroller estimated that the city pension funds had a 3.3% rate of return for FY-2015. Of that amount 3.1% is due to interest and dividends paid to the pension funds.

Based on the details in the CAFR, the total pension assets for the five funds increased only 0.198% in FY-2015. In addition, this miserable number is based on unreliable asset values for private equity, real estate, and hedge fund classes. Note that two of the funds have avoided getting sucked into the hedge fund swamp.

The opening balance for the city pension funds (no TDA and no VSF) was $144.5B. The closing balance was $145.7B. With a $0.9B positive cash flow you get a 0.198% increase in asset value.

The other bruising fact in the city's CAFR, along with the $183M increase in fees, is the $1.294B that was skimmed off from the TRS & BERS pension funds to the TRS & BERS TDA funds and the $672M that was skimmed off to the VSF funds.

In FY-2015, the S&P 500 index rose 5.2% (from 1960.23 to 2063.11). NYCERS reported a 1.88% net of fee return on its structured fixed income class (Treasures, Corporates, & Mortgage Backed Securities) with a benchmark of 2.08%. With the 70%/30% asset allocation that the funds are currently using, the projected increase in asset value for FY-2015 could easily have been 4.24%, not 0.198%. That would have been a $150.95B closing balance instead of $145.67B.

That is $5B in one year. This why investment decisions are so important. The state implements Tier 6 and the trustees blow it all on bad investments.

All five of the pension funds had a decease in their funding status in FY-2015. The levels weren't great to start with. Here is the bad news.

  • NYCERS went from 75.32% to 73.13%.
  • TRS went from 71.79% to 68.04%.
  • BERS went from 78.60% to 75.33%.
  • Police went from 74.44% to 73.85%.
  • Fire went from 63.78% to 62.79%.

Here are the accounting numbers for the five city pension funds:

Money Coming In for FY-2015

(in millions)Five FundsNYCERS TRS BERS Police Fire
employee contributions $1,015.0 $467.1 $158.6 $39.6 $241.1 $108.6
employer contributions $9,986.8 $3,160.3 $3,270.0 $258.1 $2,309.6 $988.8
other contributions$55.5 $55.5
interest $1,939.5 $635.7 $758.5 $36.9 $392.8 $115.6
dividends $2,661.8 $795.3 $889.2 $46.2 $703.7 $227.4
SL income $72.5 $26.5 $20.3 $2.7 $18.0 $5.0
other ($64.9) $4.1 $0.3 ($115.1) $4.6 $41.2
Cash-in $15,666.2 $5,089.0 $5,152.4 $268.4 $3,669.8 $1,486.6

Money Going Out for FY-2015

(in millions)Five FundsNYCERS TRS BERS Police Fire
Benefits $11,994.1 $4,235.6 $4,024.3 $223.2 $2,360.5 $1,150.5
Transfers from TRS & BERS to TDA$1,294.0 $0.0 $1,249.0 $45.0 $0.0 $0.0
Payments to VSF * $12.2 $11.9 $0.0 $0.0 $0.3 $0.0
Transfers (Pension to VSF) * $660.0 $30.0 $0.0 $0.0 $590.0 $40.0
Investment expenses * $705.0 $231.8 $203.0 $10.1 $192.1 $68.0
Admin expenses * $141.9 $54.6 $58.4 $11.0 $17.9 $0.0
other $7.1 $7.1 $0.0 $0.0$0.0 $0.0
Cash-out * $14,814.3 $4,571.5 $5,534.7 $289.3 $3,160.8 $1,258.5
*
Net Cash * $851.9 $517.5 ($382.3) ($20.9) $509.0 $228.1

Closing Balances & Asset Increases for FY-2015

(in millions)Five FundsNYCERS TRS BERS Police Fire
Open Bal: $144,538.0 $54,422.0 $44,490.0 $3,279.3 $31,750.9 $10,595.8
Close Bal $145,674.8 $54,889.3 $44,254.7 $3,359.8 $32,356.0 $10,815.0
Net Change $1,136.80 $467.30 ($235.30) $80.50 $605.10 $219.20
Cash Flow: $851.9 $517.5 ($382.3) ($20.9) $509.0 $228.1
Open Bal Adj:$144,538.0 $54,422.0 $44,107.7 $3,258.4 $31,750.9 $10,595.8
Close Bal Adj:$144,823.4 $54,371.8 $44,254.7 $3,359.8 $31,847.0 $10,586.9
Net Change Adj:$285.4 ($50.2) $147.0 $101.4 $96.1 ($8.9)
Rate of Asset Increase: 0.197% -0.092% 0.333% 3.112% 0.303% -0.084%