Friday, February 27, 2009

Board of Trustees

NYCERS is administered by a board of trustees. There are eleven trustees on the board. Eight are elected city officials and three are presidents of the unions with the largest membership in NYCERS.

The NYC Comptroller and the Public Advocate are trustees, as are the five Borough Presidents. You can see the shadow of the old Board of Estimate in NYCERS’s board. Actually prior to 1968, the Board of Estimate administered the pension system. Interestingly, the mayor is not a trustee but appoints a person to be a trustee. That person is also the statutory chair of the board.

The director of the city’s Office of Labor Relations is required annually to verify the status of the three unions with the largest membership in NYCERS. The director has never performed this annually verification.

DC-37 currently is one of the union trustees on the board. DC-37 has a history of internal widespread corruption which resulted in receivership by the national union, AFSCME, in the late 1990’s.

The trustees are responsible for the investment decisions of pension system.

The Comptroller is the statutory custodian of the assets. Historically this meant that the Comptroller had the actual physical possession of the securities owned by the pension system. Long ago, the Comptroller ceased to be able to be the actual custodian and for many years has contracted out this function to a custodian bank. Currently this bank is the Bank of New York. For many years, it was Citibank.

The trustees are statutorily authorized to delegate their investment authority to the Comptroller. The trustees do this each June for the following 12 months. This delegation has no stated rationale and the Comptroller has no obvious investment expertise. For the sake of obvious prudence the trustees have hired outside experts to advise them on investment decisions and outside managers to actually execute those decisions. Unfortunately, the trustees underpay their investment advisers and overpay their investment managers. This results in questionable advice and overpriced performance.

It is clear to everyone that the trustees have no particular skill in investment matters. The trustees, however, have over the years felt free to claim credit for the investment performance of the assets of the pension system. I wonder if they will feel free to accept blame for that performance.

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