Friday, January 27, 2017

Tier 6 - The New 3/4 Accident Disability Benefits - What Will Members Pay?

On June 6, 2016 the mayor announced an agreement with the unions representing the Uniform Forces of Fire, Sanitation, and Corrections granting their Tier 6 members a ¾ accident disability benefits under Tier 6.

The Uniform Fire Force

The benefit for the Uniform Fire Force needed subsequent state legislation, Chapter 298 of the Laws of 2016. It will cost eligible firefighters 2% of payroll every year to start. As of 9/18/2019 the actuary will review the cost of the program and I am quite certain the cost will rise to 5%. Luckily for firefighters the cost is capped at 5%.

Chapter 298 also created a new agency to administer the Fire pension fund staffed with personnel from the internal pension division within the Fire Department.

When members are paying 5% per year for the benefit, I guarantee you that the number of accident disability awards at the FDNY will greatly increase from the current level of 57% of retirees (9,842 out of 17,261 as of FY-2015). God help the funding level at the FDNY-PF.

The Uniform Sanitation and Correction Forces

In contrast to Fire, the benefits for the Uniform Sanitation and Correction Forces utilized Article 25 of Tier 6 to authorize the new benefit. See the recap below. In this structure there is no cap on the costs that the eligible members will have to pay for the new accident disability benefit.

In 2012, as part of the Tier 6 legislation, the legislature added three new parts to the RSSL, Articles 23, 24, and 25. Articles 23 & 24 apply to the NYSLERS. Article 25 applies to NYCERS, NYCTRS, and BERS.

The idea behind these new articles is to provide the state and the city with the right to grant pension benefits to bargaining units with the provision that the members getting the new benefits would pay for the full cost of the granted benefits.

At first look this might seem like a reasonable idea. It has, however, several potential problems.

Initially, the definition of the new pension benefit is not contained in state statute. I would assume the mayor will issue an executive order legally describing the benefit and giving public notice since there will inevitably be litigation arising from these benefits. As of today there are no publicly available executive orders granting the new benefits.

Secondly it appears that only the state legislation can terminate these benefits. Without legislation the parties are locked into these benefit/funding arrangements, no matter how onerous.

Thirdly, the retirement system involved, in this case NYCERS, will have to set a contribution rate and a control system to insure that the members are paying for the cost of the benefit. This is something very easy to say but very hard to do.

To properly do this, NYCERS will have to carefully track each one of these new accident disability awards correctly determining the extra cost for each benefit and offsetting the reserve that has been built to cover this cost. The actuary will have to be very careful to correctly cost these benefits because the city can not pay for any of this added cost. The interest rate assumption and mortality tables will be crucial. You know there will be shortfalls all the time.

The Added Cost of the New Benefit

Let me give you an idea how much this benefit will cost. A current Tier 6 Sanitation member is eligible for a 50% accident disability benefit equal to 50% of his/her five year average earnings (FAS) reduced by 50% of his Social Security disability benefit. This is a rough description. The SS offset can get very convoluted. For the sake of simplicity and being conservative, let us assume that the final benefit after the offset would be 45% of the member’s FAS.

The new benefit will be 75% with no SS offset. That is a 30% increase in the lifetime benefit. For example, a member with a $70,000 FAS who is disabled at age 38 will see an annual increase of $21,000 in his accident disability benefit. The IRS 4% annuity factor at 38 is 19.1665. Together they create present value of $402,496. For this example let us assume 25 accident disability awards per year. This gives you an annual cost for the new benefit of $10,062,400.

There are approximately 7,000 Sanitation workers of which about 1,750 are in Tier 6 right now. That number grows by 350 per year. NYCERS must give the existing 1,750 members the option to elect this benefit. All new Tier 6 members will be forced to pay for the benefit. The cost divided into 2,100 workers is $4,830 per year. That is 6.9% of a $70,000 salary.

I suspect you already can see the tidal wave coming.

What NYCERS Is Charging

NYCERS has costed this benefit out at 1.3% of payroll for Sanitation and .8% for Corrections and stated that they will review the rate on 6/30/2019. It would be interesting to see the calculations that support these percentages. But I guess that would be too much information for the public to handle. Yeah, right.

The Sanitation rate will fund a benefit with an annual value of $1,911,000 (2,100*.013*$70,000) or 4.75 accident disability pensions per year. What does NYCERS do if they have 10 accident disability pensions a year? What will NYCERS do on 6/30/2019 if they 15 or 20 unfunded accident disabilities? That could be a $8M deficit.

I suspect that there are approximately 350 Sanitation workers retiring each year. If they are a Tier 6 members, they now have an intense motivation to file for an accident disability pension. The moral hazard is very large.

I spent 20 years sitting at NYCERS Board meetings for disability benefits. The idea that there will only be 2.3 accident disability awards per year per 1,000 Tier 6 Sanitation workers is naïve.

If 7,000 Sanitation workers find themselves paying a substantial percentage of payroll for a ¾ accident disability benefit, they are going to file for it.

I won’t be 57% but NYCERS should be ready for at least 33%. They will work until they are injured. Members know how to maximize their pensions.

When a member pays for a benefit, he or she is going to get it, hell or high water. This will get very ugly. You can imagine if they have to pay 15% every year for this benefit.

Everyone should read about the Dallas Police and Fire Pension Fund to see how bad things can get when people are irresponsible about running a pension fund.

Recap of Article 25 of the NYS RSSL.

- The city of New York may elect to provide its employees benefit enhancements

- Such election may be made at the sole discretion of the mayor of the city of New York to the retirement systems upon receipt of a request from the collective bargaining organization,recognized or certified to represent such eligible employees, for such benefits.

- Upon election by the city of New York, the retirement system shall require additional member contributions to be paid by all eligible employees.

- The additional member contributions to be paid by eligible employees shall be of a level so that no additional contributions shall be paid by the city of New York to cover the cost of such additional benefits.

Monday, January 2, 2017

Tier 4 Sanitation Workers Being Forced into Tier 6 - also Correction Officers and DA Investigators

Two months ago in the being of November, NYCERS started sending letters to a group of Tier 4 Sanitation Workers. The letters stated that NYCERS had incorrectly put them in the Tier 4 Sanitation 20 Year Plan.

This group of Sanitation Workers had NYCERS membership dates prior to April 1, 2012 but had stared working as Sanitation Workers after April 1, 2012, the date that Tier 6 became effective. Originally, NYCERS had correctly placed these members in the Tier 4 Sanitation Plan.

Now NYCERS, ignoring their pre April 1, 2012 membership dates, was stating that since they started working as Sanitation Workers after April 1, 2012, NYCERS was stripping them of their Tier 4 rights and putting them in Tier 6. This was a serious reduction in their benefits. This problem will continue to occur whenever a Tier 4 member becomes a Sanitation Worker, Correction Officer, or DA Investigator.

In New York State the pension rights of state and local government employees are protected from being reduced by the N.Y.S. Constitution, Article V, Section 7. (Klienfeldt v NYCERS, 36 NY.2d 95 (1975) and CSEA v Regan, 71 NY2d 653 (1988))

In addition to violating members' contractual rights guaranteed under the N.Y.S. Constitution, NYCERS provided

  1. no legal analysis supporting this change in procedure,
  2. no pre-deprivation hearing to the members to allow them to challenge this negative decision,
  3. no notice to these members that they have 120 days to file an Article 78 in N.Y.S. Courts to fight this arbitrary and capricious decision.
And finally in classic NYCERS fashion, these letters were not signed.

To rub salt in the wound, NYCERS told these members that all of their Tier 4 Sanitation contributions plus interest would be refunded to them along with the resulting tax liability that would adhere to that refund. Of course, they will have to repay this money with interest in the Tier 6 plan.

I now know that there are comparable groups of Correction Officers and DA Investigators who have been illegally forced in Tier 6. I'm not sure whether they were all given notice.

The NYCERS operating budget is fully funded by the assets of the members and retirees of NYCERS. Why is NYCERS so hostile to the membership? This atrocious legal decision by both D'Alessandro and Mazza is another sign of the total chaos occurring at NYCERS.

Listed below is the new wording added in 2012 which created the Tier 6 Sanitation/Correction membership. A member becomes subject to an article of the Retirement and Social Security Law as of their membership date not their employment date.

25. "New York city uniformed correction/sanitation revised plan member" shall mean a member who becomes subject to the provisions of this article on or after April first, two thousand twelve, and who is a member of either the uniformed force of the New York city department of correction or the uniformed force of the New York city department of sanitation. (Section 501.25 of the NYS-RSSL)

Sunday, December 25, 2016

King v. NYCERS: David Against Goliath

This is a story of the King v. NYCERS case and a lone individual who fought NYCERS and in spite of many setbacks finally won. NYCERS was almost able to deprive this person of two thirds his pension except that Mr. King fought back. He never gave up.

On August 8, 2015, days short of his 95th birthday, Judge Jack Weinstein handed down a decision in the King v. NYCERS case. Ironically Weinstein was appointed as a federal judge to the Eastern District of New York in 1967 by President Lyndon B. Johnson. He is a recognized legal scholar and is one of the most famous judges in the United States.

Start of the Story

David King began working for the City of New York on May 19, 1971 at DEP. On the same day he joined NYCERS in the old Tier 1 pension plan. He was 29 at the time with a birthdate of November 16, 1941. He left DEP in 1977. He withdrew his NYCERS pension contributions on April 14, 1977 which terminated his Tier 1 membership.

In 1984, he started working at the TBTA as Bridge and Tunnel Officer. He rejoined NYCERS on February 16, 1984 as a Tier 4 member. On August 19, 2000, he resigned from the TBTA. He was 58 at that point. He was not yet eligible to retire. He had accrued 9 years of service over the 16 years at the TBTA but was short the needed age of 59.

He did not file a retirement application when he resigned nor when he turned 59 on November 16, 2000, the date he was eligible to retire. He had become a vested member of NYCERS in 1998 when legislation dropped the vesting criteria from ten years to five and therefore his membership remained active indefinitely. It is unclear why Mr. King did not file a retirement application at age 59 point but it is clear he did not.

In 2004, when he became aware that he might be eligible to reinstate his old Tier 1 membership in NYCERS, he filed an application with NYCERS for that reinstatement. The membership reinstatement statute was enacted on December 17, 1999. To be eligible for reinstatement you must be a member and not a retiree.

On October 25, 2005, NYCERS responded to his reinstatement application. They notified him that he was eligible and that he would have to pay $5,584.28 to restore the old Tier 1 membership. The amount reflected the amount he withdrew in 1977 with interest. On June 6, 2006, Mr King submitted his Tier 1 Membership application to NYCERS.

On November 17, 2006, he paid NYCERS $5,917.83 for his reinstatement and $5,544.72 for his Tier 1 deficit. At this point his membership date changed from February 16, 1984 (Tier 4) to May 19, 1971 (Tier 1) and his service credit increased from 9 years to 14.9 years.

On December 16, 2007, NYCERS notifies Mr. King that he had vested right to retire which was effective as of June 6, 2006. That was the day that he filed is Tier 1 membership application. He was 64 as of that date. On January 8, 2008, he filed for retirement under Tier 1. NYCERS began paying Mr. King advanced benefit payments under Tier 1 as of February 29, 2008.

Then the war started.

In a September 4, 2008 letter, NYCERS tells Mr. King that upon further review of his case he was retired under Tier 4 as of his 59 birthday, November 16, 2000 and that in turn made him ineligible for reinstatement to Tier 1 in 2006 because as stated before retirees are not eligible for reinstatement. This letter was signed by Andrew Feneck

NYCERS was absolutely wrong in its September 4, 2008 statement. It is clear case law that a member must file an application with NYCERS for his retirement to be effective. This issue has been litigated many times since 1920. It is settled law.

This is legal incompetence. The NYCERS trustees have a critical problem with its legal advice.

I know Mr. Feneck. I worked with him for over 20 years at NYCERS. He knows his letter was illegal but I am quite sure he was given orders from Karen Mazza, the in-house attorney, to write the letter. You will notice this letter was not signed by Mazza.

This is how corruption infects every phase of an organization’s daily workings. The NYCERS trustees recently appointed Mazza as acting executive director.

This decision by NYCERS changed Mr. King’s retirement benefit as follows:

  1. Tier 1: $19,835.87/year starting on June 6, 2006
  2. Tier 4: $6,240.80/year starting on November 16, 2000
There are annual cost of living adjustments involved, roughly $270/yr. for Tier 1 starting 2011 and $95/yr. for Tier 4 starting in 2005.

As of September 30, 2008, NYCERS started paying Mr. King Tier 4 retirement benefits and stopped his rightful Tier 1 benefits.

The following fight is over $13,600/yr. payable to a 64 year old man. Not high finance but to Mr. King this was substantial amount.

Up to this point, this is not an unusual story in so far as that NYCERS illegally hammers its members, retirees and employees all the time. What is unusual is Mr. King’s ability to fight back and win.

On August 25, 2011, Mr. King filed an Article 78 in NY State Supreme Court, Kings County challenging the September 4, 2008 action.

On January 12, 2012, his claim was dismissed because King had missed his 4 month deadline for filing an Article 78 claim against the September 4, 2008 action. The court, however, also dismissed all his arguments and found them without merit. As I said before, this was a case where NYCERS was without doubt wrong on the law and should have been correcting its error according to Section 13-182 of the NYC Admin Code.

On August 22, 2013, Mr King filed a claim in federal court on his own without a lawyer. Mr. King was not done yet. He claimed

  1. that the state court without conducting an evidentiary hearing dismissed his claims on the merits,
  2. that NYCERS had violated his constitutional rights to due process,
  3. that NYCERS was in breach of contract and its fiduciary duties pursuant to Section 7 of Article V of the NYS Constitution and the NYCERS Rules and Regulations, and
  4. that NYCERS violated Section 349 of the NY General Business Law.

On October 16, 2013 NYCERS moved to dismiss Mr. King’s federal action because all Mr King’s claims had already been resolved in state court.

On November 25, 2013, Judge Weinstein thinking his hands were tied dismissed Mr. King’s federal action.

In a last ditch effort Mr. King appealed to the Court of Appeals of the Second Circuit again on his own.

On December 10, 2014 the Second Circuit issued a summary order denying his appeal against the Article 78 dismissal but overturning the state court decision rejecting Mr King’s arguments on the merits. It then remanded Mr. King’s substantive claims to Judge Weinstein from determination.

King Wins

This was a win for a retired Bridge and Tunnel Officer fighting by himself against the Law Department of the City of New York before the premier federal appeals court in the United States. It was truly a David against Goliath moment. In addition the Second Circuit assigned Mr. King pro bono counsel

With the direction of the Second Circuit to consider the merits of the remanded claims, Judge Weinstein went to work. He wrote a 54 page decision dealing with due process, contractual rights and general business law.

He was not happy with the fact that a state issue was being marched through the federal courts but given the appeals decision he addressed the issues. In short, Judge Weinstein found that Mr. King was retired under Tier 1 as on June 6, 2006 and not under Tier 4 on November 16, 2000 and that NYCERS was wrong in 2008.

Specifically he found that Mr. King had both a due process claim and a contract claim.

The full details of his analysis exposes serious problems for NYCERS and the city in dealing with challenges to administrative pension decisions.

Judge Weinstein granted Mr. King equitable estoppel with respect to his due process claim and its three year filing requirement. He based his decision on the fact that NYCERS had provided no post-deprivation notice to Mr. King of his right to file an Article 78 against NYCERS and the four month time limitation for that filing. If fact, he found that NYCERS must provide a pre-deprivation hearing regardless of the adequacy of the post-deprivation (Article 78) remedy.

As far as I know, the NYC Law Department has never informed NYCERS that its members and pensioners have a due process right to pre-deprivation hearing based on the 14Th Amendment of the U.S. Constitution.

Judge Weinstein found that NYCERS violated Mr. King’s due process rights by not providing him with an opportunity to contest NYCERS’ decision prior to the reduction of his benefits.

Judge Weinstein also found that NYCES breached its contract with Mr. King in that the agency denied Mr. King his Tier 1 retirement benefit. This was the basis on which Judge Weinstein settled Mr. King’s claim stating that he did not want to impose damages which could attach to a due process finding.

NYCERS tried to appeal the 2015 decision. Remember this is a case where the city and NYCERS were clearly wrong on the substantive issue. This case was not about justice. It was about crushing a lone member. I can only guess what the legal costs were for this case.

At this point Mr. King's counsel was prevented in defending Mr. King further. Mr. King was, however, able to obtain legal counsel from Mr. Gary Stone at the Brooklyn Legal Services located at 105 Court Street in downtown Brooklyn. Mr Stone was also able to get the help of Mr. Edgar Pauk who has a long history of fighting the city.

The parties eventually settled the case with a resulting 2016 decision (7/25/2016) slightly modified allowing NYCERS to escape interest charges.

Let’s hope Mr. King is receiving his Tier 1 benefits.

Friday, December 16, 2016

Deceptive PR from the Comptroller

As of June 30, 2016 the Comptroller would have you believe that the five city pension funds have assets of $165.242B.

That breaks down as follows:

  1. TRS - $61.649B
  2. NYCERS - $54.553B
  3. BERS - $4.495B
  4. Police - $33.592B
  5. Fire - $10.953B

This is, however, a very inaccurate description of the assets of the five pension funds. As stated in the city's 2016 Financal statement the total pension assets of the five funds is $146.915B broken down as follows:

  1. TRS - $43.629B
  2. NYCERS - $55.489B
  3. BERS - $3.416B
  4. Police - $33.482B
  5. Fire - $10.899B

The main reason for the differences is that the Comptroller is adding in the assets of the 403(b) and VSF plans in the total figures. The assets in those plans can not be used cover the pension liabilities of the five pension funds. Listed below are the assets of those plans:

  1. TRS-TDA - $28.444B
  2. NYCERS-COVSF - $0.005B
  3. BERS-TDA - $1.630B
  4. Police-POVSF - $1.307B
  5. Police-PSOVSF - $0.521B
  6. Fire-FFVSF - $0.502B
  7. Fire-FOVSF - $0.305B

They total up to around $32.6B.

Strange Accounting at the CO-VSF and NYCERS

There appears to be some strange entries in the CO-VSF financial statements (City CAFR's) over the last several years.

  • In the fiscal year ending June 30, 2014 there is an entry for $38M for benefit payments. There wer was no VSF benefit payments in December, 2013. There was also an entry for $190M for a skim from NYCERS to CO-VSF. The year opened with a balance of $36M and closed with a balance of $188M
  • In the fiscal year ending June 30, 2015 there is an entry for $78M for benefit payments. The skim entry was $30M. The year closed at $140M.
  • In the fiscal year ending June 30, 2016 there is an entry for $82M for benefit payments. The skim entry was -$53M. The year closed at $5M.

In May, 2015 NYCERS appointed a new actuary, Ms. Sherry Chan. The NYCERS actuary is also the CO-VSF actuary. The NYCERS chair and the Comptroller are also trustees of the CO-VSF Board.

In a May 12, 2016 resolution the NYCERS Board and the NYCERS actuary stated that there was a mistake in FY-2014 skim. The skim should have been only $137M and not $190M. In response to this screw up NYCERS pulled $53M out of the CO-VSF.

It is not clear wheteher the -$53M entry was just an accounting correction or an actual movement of money from CO-VSF to NYCERS. I do not know whether there is any legal authority that allows money to flow back to NYCERS from the CO-VSF.

In a Nov. 4, 2016 letter to the CO-VSF Board the NYCERS actuary, Ms. Chan, states on page 3 that there will be no skim in FY-2017 into the CO-VSF.

The actuary states that the skim is based whether the FY-2016 return on NYCERS's equity investments exceeds the average yield on the 10 year U.S. Treasury Notes by 115%.

She does not define what are NYCERS equity investments nor does she describe how she computes the returns. In particular she does not state whether hedge funds, or private equity and real estate partnerships are included in the equity investment class and how she would compute their returns considering that they are illiquid. For the record she does not state specifically what was NYCERS's return on its equity investments in FY-2016. She does not state what was the average yield on the 10 year U.S. Treasury Notes or how that number was computed.

If there is no skim, then there was a deficit for the CO-VSF for FY-2016. She does not mention what that resulting deficit was. There should be running chart year by year showing what the excess or deficit is and what the skim hurdle is.

She also states that the market value of the CO-VSF assets as of June 30, 2016 is $47M. She provides no details or support for this statement. The city CAFR states that the June 30, 2016 CO-VSF closing balance was $5M. For the record the city CAFR also does not detail the CO-VSF assets.

As far as I know there is no documentation about the investment activity for the CO-VSF. With a 3% return rate interest rate on a $35M bond portfolio, you should expect a $1.5M interest flow each year into the fund. The reported interest earned was $184,000 in 2016, $10,000 in 2015, $20,00 in 2014, and $38,000 in 2013. There is something very strange going on.

Friday, December 9, 2016

Bad News - NYCERS Reup'd on the Lease for the LIC Disaster Site? No. Mazza is Acting Executive Director as of January 1.

In late spring of 2006 NYCERS signed a ten year lease for a disaster recovery site in Long Island City. It came up for renewal this year and it appears from recent comments by the executive director, Diane D'Alessandro that NYCERS renewed the lease.

At the November 10, 2016 Board Meeting, D'Alessandro announced that by January 1, 2017 some poor souls who work in document control and the mail room will be assigned to work at LIC. There was no mention of the Certificate of Occupancy for the site. Maybe NYCERS finally got the C.O. after ten years. Maybe they are afraid to say so because then they would have to admit it took them ten years to get it.

I don't understand how DC-37 has agreed to let their members to be permanently exiled to such a dump. You can be sure none of D'Alessandro's buddies will have to work there. I wounder if the Post Office will pick up mail from the site?

As far I know there has never been a full fledged test of a recovery plan since workers were not legally permitted on the site. I have no idea how NYCERS has been able to 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.

I guess NYCERS had no option but to renew the lease for five years.

Well D'Alessandro will be gone on January 1. It will be someone else's mess then. Oh, maybe Mazza can solve this problem.

Saturday, November 19, 2016

Structure of the CO-VSF

The CO-VSF Board has five trustees, the NYCERS chair(one vote), the Comptroller (one vote), the Finance Commissioner (one vote), the head of COBA (one & half votes) and the head of the Correction Captains union (half vote). By statute the NYCERS actuary is the actuary for the Co-VSF. I am not sure when the CO-VSF Board last met. This board along with the actuary should be publicly informing the CO-VSF retirees what is happening with the 2016 payments and providing them with supporting documentation. With modern technology this is an easy lift.

CO-VSF is required to publish a financial statement every year in the City Record

7. The variable supplements board shall publish annually in the City Record a report for the preceding year showing the assets of the correction officers' variable supplements fund and a statement as to the accumulated cash and securities of such fund as certified by the comptroller, and shall set forth in such report such other facts, recommendations and data as the board may deem pertinent.
NYS DFS has issued only one audit of the CO-VSF system.

The following text is from that audit:

A. History

Chapter 657 of the Laws of 1999 established the Correction Officers Variable Supplements Fund (“COVSF” or the “Fund”) and the Correction Captains’ and Above Variable Supplements Fund (“CCAVSF”). Chapter 255 of the Laws of 2000 (“Chapter 255/00”) combined the COVSF and the CCAVSF into one amended fund (Correction Officers Variable Supplements Fund) effective December 29, 1999.

The Fund operates pursuant to the provisions of Title 13, Chapter 1 of the Administrative Code of the City of New York (“ACNY”). It provides supplemental benefits to members of the Uniformed Correction Force (“UCF”) that retire on or after July 1, 1999, with 20/25 or more years of service from the New York City Employees’ Retirement System (“NYCERS”).

Under current law, the Fund is not to be construed as constituting a pension or retirement system. Instead, it provides supplemental payments, other than pension or retirement system allowances, in accordance with applicable statutory provisions. The New York State Legislature has reserved to itself and the State of New York the right and power to amend, modify, or repeal the Fund and the payment it provides.