Monday, December 27, 2010

Outstanding Loans at Retirement (also Deficits)

Tier 4 Outstanding Loans at Retirement (also Deficits)

Many Tier 4 NYCERS members retire with a pension loan outstanding. The member can choose to pay off the full outstanding loan or have his/her benefit reduced by the actuarial value of the outstanding loan.

The reduction is accomplished by dividing the amount of the outstanding loan by an annuity factor to produce the amount of the annual reduction of the full pension benefit. The annuity factor is a function of an interest rate and one of the two Tier 4 mortality tables (service & disability).

The loan statute specifies that the interest rate changes each year and is equal to the 30 year US Treasury bond rate on January 1 of that year. All retirements during that year are keyed to that interest rate. That means that the cost is dependent on the year you retire. The factors change every year.

I’ve listed below a small snapshot of the service annuity factors for Tier 3&4 loans over the last five years as well as Tier 1&2 loan factors which do not vhange each year. For some reason NYCERS does not list the full tables when discussing the pension benefit reduction for outstanding loans at retirement.

Loan reduction factors – Service Retirements
****Tier 3&4 Tier 3&4Tier 3&4Tier 3&4Tier 3&4 Tiers 1&2Tiers 1&2
Year20062007200820092010 all yearsall years
Interest raten/a4.81%4.45% 2.69%4.63% 4%(F)7%(U)
Age at
55 13.90313.47413.99217.10613.729 13.80310.941
56 13.68113.26613.76716.76413.513 13.50110.810
57 13.45213.05213.53516.41613.290 13.19310.673
58 13.21812.83213.29716.06213.061 12.88110.531
59 12.97712.60613.05415.70412.826 12.56610.383
60 12.73112.37412.80515.34312.586 12.24610.230
61 12.48012.13812.55114.97712.341 11.92310.072
62 12.22411.89612.29214.60812.091 11.5969.909

The Tier 4 loan annuity factors are different from the factors used for computing the reduction for optional pension benefits. At retirement, a retiree can pick these benefits in lieu of his/her full maximum pension benefit. Optional benefits provide payment to a beneficiary when the retiree dies, whereas the maximum benefits stops upon the death of the retiree. As of August 19, 1985 the interest rate for these annuity factors is 7% (see the Tier 1&2 factors in the table).

Tier 3&4 Members who retired in 2009 received a significant break on the benefit reduction for outstanding loans. This was tied into lower interest rates caused by the financial crisis that hit in late 2008. A $10,000 outstanding loan for 2009 retirement at age 55 caused a $584.59 (=$10,000/17.106) annual reduction. In 2008, the same $10,000 loan resulted in a $714.69 (=$10,000/13.992) annual reduction at age 55.

In Tier 1&2, the same annuity factors are used for both outstanding loans/deficits and optional benefits. They are based on a 4% (female mortality) or 7% (unisex mortality) interest rate depending on which produces the best benefit. The factors do not fluctuate from year to year. There is also a provision which allows Tier 1&2 members contribute excess contributions. This, in turn, allows for an additional annual annuity paid in retirement based on these additional member (not employer) contributions. Tier 4 makes no provision for excess benefits based on excess contributions.

Note: Prior to 1991, the start of the Tier 4 Loan program, deficits in contributions resulted in the loss of the service credit associated with the missing pension deductions. Since the loan program offered an actuarial reduction process, NYCERS extended this process to deficits. NYCERS then offered members, retiring with deficits, the opportunity to have the deficit treated as an outstanding loan. This allowed the member to take an actuarial benefit reduction rather than the loss of the service credit. Usually this would produce a lower benefit reduction.

Interestingly, from February 18, 2002 to February 8, 2006, the US Treasury did not offer 30 year bonds and therefore, there were no daily quotes for these securities during this period. It is not clear what interest rate the NYCERS actuary used for retirees between 2003 and 2006.

Friday, November 19, 2010

Warning on Pension Revisions

Recently NYCERS sent a retiree a pension revision letter dated October 21, 2010. The member had retired five years earlier in 2005.

NYCERS was notifying him that they were reducing his annual pension from $39,924 to $36,165 and that they were going to recover $18,915 in overpayments by further reducing his monthly pension check by $378 over the next 4 years.

The letter said that the reason for the reduction was that NYCERS had used the wrong required contribution percentages for the member when NYCERS was calculating his required contributions. NYCERS had originally used 4.45% effective as of the retiree's membership date in 1982 and 4.25% as of 6/30/97. NYCERS was now saying that it should have used 6.45% all the way back to 1982. This increased his required contributions from $42,979 to $77,325 and in turn reduced his pension benefit.

NYCERS gave no rationale for using any of these rates. NYCERS did not state a reason why NYCERS had reviewed the retiree’s case 5 years after retirement. NYCERS also did not provide the retiree with a copy of the new calculation of his required amount or the history of his pension contributions and the interest they earned.

The retiree called NYCERS on 10/29/10 asking for further explanation of this significant reduction. The call center agent told him that he would get a call back within 3 business days explaining the revision.

On November 9, 2010, after not receiving the promised call back, this retiree and I visited the NYCERS customer service center. The customer representative indicated that the inquiry had been misdirected and maybe that was why NYCERS had not returned the retiree's call.

During the meeting it became clear that NYCERS had not scanned the October 21, 2010 letter into the agency's imaging system until November 8, 2010, the day before our visit. This two and half week delay may have contributed to the failure to call back the retiree. For an agency that is as well funded as NYCERS, this delay is a sign of an operations failure.

From the specific rates quoted in the letter, I guessed that NYCERS was incorrectly applying the specific plan rate to the period from 1982 to 2002. The statute, however, specifically limited the plan rate to only service credited after 6/30/2004.

After we showed the applicable section of law to the NYCERS customer representative, he promised to get an answer from the officials upstairs and call the retiree the very next morning.

The member, however, did not receive a call the next morning. The member waited until 3:00 PM and called the NYCERS call center. He was eventually connected to the representative from the previous day who then told the retiree that the October 21, 2100 letter was in error. The representative also stated that NYCERS would send an explanatory letter and that NYCERS would cancel the scheduled changes to his November pension check.

Let’s hope that this story ends well. The retiree did receive a letter on November 19, 2010 confirming that the original letter was in error and that there would be no change to his pension check. There was, however, no explanation of the cause of the error. Everyone makes mistakes. It's how one handles the mistake that defines you.

I suspect that that without my help this retiree would have lost a lot of money. I have been trying for many years to get NYCERS to provide a rationale for their interpretation of the rates used in the pension plan that this member retired under. NYCERS has, however, refused to provide their rationale.

Monday, October 4, 2010

Investment History at NYCERS - The good old days

Listed in the chart below are the values of the NYCERS portfolio for the last 30 years (as of June 30).

In the 1980's NYCERS tripled the value of is assets.

In the 1990's NYCERS more than doubled the value of its assets.

In the last ten years, instead of increasing its asset value, NYCERS has lost $8B or 20% of the value of its assets.

What makes this downward trend worse is that in FY-92, for example, NYCERS spent $13M in investment fees. While in FY-2010, NYCERS spent approximately $150M in investment fees. There is no accountability for the investment decisions of the trustees. No one knows whether they are brilliant or incompetent.

The next time you hear someone attack public pension plans, point out to them that investment decisions by elected officials are the main threat to the solvency of the pensions. By the way you never hear of workers not making their pension contributions. That skill is left to employers, both public and private.


Monday, July 19, 2010

NYC Pension Costs for FY-2011

Based on the NYC adopted budget figures the pension costs for NYC for FY-2011 are as follows:


It is not clear how the $603M adjustment figure will be divided up among the five pension funds.

The numbers in the table come from the the extensive schedules provided on the NYC OMB web site. There is so much info on the web site, that the data almost hides itself. But it is there, nicely broken down. The cost for NYCERS does not include expenses paid by public authorities which ususally run about 45% of the city cost.

It is clear that based on membership the police, fire, and teachers pension funds are the major source of pension costs and unfortunately, they all have underfunding issues. It is also clear that these costs are not sustainable and that all parties will have to make major changes.

As I have said in the past, there are three keys to pension success or failure. They are funding, investing, and benefits. The most immediate and crucial key right now is investing. While the city should be putting more money into the funds and Albany needs to scale back benefits, more importantly, the pension funds should be uncompromisingly prudent with their investment decisions.

When it was reported last week that the NYCERS trustees were planning to invest in hedge funds, my opinion was that the trustees were again being lead astray. Just remember that the assets belong to the members and retirees of NYCERS, and not to the city or the trustees.

The NYCERS trustees should adopt a certain level of humility with regards to their ability to invest money. Their annual rate of return for the 10 year period from 1999 to 2009 is 2.14%, not 8%. In addition to their total lack of accountability for investment returns, the trustees have managed to increase annual investment expenses from $30M to $150M during the same 10 years.

Wednesday, July 14, 2010

Slow Motion - Another Year at 8%

Bob North, the NYCERS actuary, is kicking the can down the road for another year. For the second year in a row, North has failed to recommended a new 5 year expected rate of return for the five city pension funds. That means another one year extension of the irresponsible 8% interest rate.

In plain English, this means the city & the other participating employers can continue to uderfund the pension plans for another year. Of course, things could be worse. New Jersey use 8.25% but then again, New Jersey doesn't make any pension contributions at all.

See the write up on this pending bill.

North has known for years that he needed to recommend a new interest rate in FY-2009, the last year of the last five year period. I know Bob moves slowly but this is glacial. No one wants to amputate a leg but if you don't, the gangrene will kill you.

A prudent rate would be 6%. But the city is between a rock and hard place. Because the city uses fairly accurate accounting, it has budgeted $7.49B in payments to the five pension funds for FY-2011. This is a huge number in spite of the inflated 8% assumption. A 6% rate could easily add $3B more to the cost for FY-2011.

The biggest threat to any pension plan is underfunding, followed by lousy investment decisions. What ever the benefits are, rich or poor, the driving force is funding. The city delayed paying its full pension costs and now time is running out.

One positive note. Compared to other public pension systems, the city is a saint.

Friday, May 28, 2010

NYCERS -- Real Estate Investments

Starting in 2003 NYCERS started reporting investments in real estate limited partnerships. The table below shows the reported values for those investments. You can see that the bulk of the investments occurred in FY-2007, the height of the mortgage market. Great timing!

It would be helpful, if NYCERS displayed on its web site the details of the investment history of the fund. Of course, that would probably raise too many questions about the investment decisions by the trustees.

I have always been fascinated by the Comptroller’s decision in 2005 to stop posting the quarterly returns of the five city pension funds. The last posting was March 30, 2005, the month I was forced to leave NYCERS.

On a closing note, it would be nice not to have to pay a lot to lose money.

Year Value(in millions) Expenses(in millions)

Monday, May 24, 2010

Layoffs and the History of Investment Expenses for the Five City Pension Funds

At the beginning of May the mayor announced that as part of his FY-2011 budget he was planning to cut the city payroll by 8,270 positions. Assuming a savings of $70,000 per position per year this represents a $579M annual savings. The heaviest hit will be to teachers with a 5,200 reduction.

The following is a history of the growth in investment expenses for the five city pension funds. Fiscal years 2010-11 are based on budgeted figures and projections.

The city and the public authorities must pay back these costs plus 8% interest in the following year after the costs are incurred. For example in 2010 the city had to pay to the five pension funds $339M plus $27M in interest to cover the $339M expense incurred in 2009.

These investment expenses have gone up 336% from 2002 to 2009 and the investment performance has been terrible.

Besides their huge size and rapid growth there are two disturbing aspects about these investment expenses. One is the lack of oversight by the pension funds of these costs and the other is the fact that significant portions of the costs are not itemized and not attributable to specific vendors.

For example, NYCERS is on record in its FY-2009 financial statement as having paid $25.5M for a private equity organization cost and $1.6M to a real estate organizational cost and $1.6M for miscellaneous investment expenses. A person reading this report would have no idea who received this money. This is in sharp contrast, for example, to the clear indication that NYCERS paid $5,522 to PriceWaterhouse Coopers listed on the same page as the phantom $25M.

This vague description raises an auditing red flag. Unfortunately, the trustees have allowed the comptroller to make these payments without oversight. To make matters worse, the comptroller is the statutory auditor of these payments.

Year Investment Expenses For Five City Pension Funds NYCERS Investment Expenses
2007$262.0M$ 98.1M
2006$192.7M$ 69.3M
2005$158.2M$ 46.1M
2004$131.6M$ 42.9M
2003$ 96.6M$ 29.2M
2002$101.9M$ 37.6M
2001NA$ 33.9M
2000NA$ 37.2M
1999NA$ 24.6M
1998NA$ 25.5M
1997NA$ 25.1M

Monday, May 17, 2010

Alert: Possible Retirement Incentive for 2010

The governor has proposed a retirement incentive bill(Program Bill #249)for 2010. It has an opt-in provision for the city and public authorities. It is not clear how this will play out between now and September 1, 2010. It is safe to say that any NYCERS member who is planning to retire before September 1, 2010 should delay that retirement until this issue is resolved.

Friday, April 16, 2010

Low Risk/Low Cost versus High Risk/High Cost

In the 12 months ending December 31, 2009, the S&P 500 index gained 23.5%, moving from 903.25 to 1115.10. At the same time, NYCERS total assets rose by 17.5% from $30.4B to $35.7B driven by the same market rebound.

In particular, NYCERS holdings with its domestic stock indexed managers, and its government and corporate bond managers gained 22.3%, closing the year at $15.5B up from $12.7B. The interesting aspect of this is that NYCERS paid only $1.8M in management fees for this return.

At the same time, the rest of the portfolio returned 16.2% moving from $17.7B to $20.6B. For this performance, NYCERS paid $132.2M.

If the NYCERS trustees had invested the entire portfolio with the indexed stock and the government/corporate bond managers, the portfolio would have been worth $37.2B instead of $35.7B and NYCERS would have saved $130M in fees.

Managers Assets 12/31/2008 Assets 12/31/2009 Return % Fees - 2009
US Stock Index$9.651B$12.333B27.80%$295,108
US Government Bond$1.229B$1.007B-18.03%$261,158
US Corporate Bond$1.794B$2.161B20.48%$1,211,612
Total Portfolio
Actual Reported $30.396B$35.727B17.54%$134,000,000
Low Risk - Low Cost $30.396B$37.179B22.31%$4,000,000

This is a clear example how a low risk/low cost strategy actually is more profitable than a high risk/high cost strategy. NYCERS makes no attempt to review the effectiveness of its investment decisions.

A note of warning: NYCERS lost $387.2M on its real estate investments in 2009, a 32.7% loss.

Friday, March 12, 2010

NYC Correction Force Retirement Plans - Chapter 622 - Laws 2004

This is an expanding description. I will be updating this posting on an ongoing basis. It is more time consuming than I first planned. Last update 5/7/2010. I better hurry up before Tier 5 changes everything.

Since 7/27/1976, members of the Uniform Correction Force (UCF) of the NYC Department of Correction who join NYCERS are entitled to benefits provided under Tier 3. They are the only group of NYCERS members still covered by Tier 3. Prior to 1990, these members were eligible for a 25 year retirement plan (C-25 Plan) with no age requirement and no additional contributions other than the standard 3% contribution required by Tier 3.

In 2004 (October 19, 2004), Chapter 622 created the new Correction Force Retirement Plan (CF-20 Plan). It was the result of years of negotiations between the Correction Force unions and the city. The primary driving force behind the legislation was Peter Meringolo, president of the Correction Captains union. The support, however, of Norman Seabrook, president of the Correction Officers union, was also crucial.


In 1990 (Chapter 936: December 19, 1990) the Corrections Officers union (COBA) was able to pass a law, with the acquiescence of the city, which gave its members a 20 year pension benefit (CO-20 Plan)with no age requirement. It applied only to its members and not to any of the members of the supervisory Correction Force unions. It was a management nightmare and serious problem for the supervisory unions. Note: there was a Tier 2 component to this legislation.

The new plan allowed Tier 2 & 3 Correction Officers to retire after only 20 years of service but required additional member contributions (AMC’s) in addition to the standard 3% contributions for Tier 3 and the age based rates used in Tier 2.

In 1993 (August 4, 1993), the supervisory unions were able to get legislation passed to also provide their members with a 20 year plan (CC-20 Plan). It, however, was significantly less favorable than the CO-20 Plan. In particular, the AMC’s for the CC-20 plan were punitive. In spite of the new plan, many problems continued.

Specifically, the new plans created a dilemma for a correction officer who wished to be promoted to the rank of captain. He/she would lose all the AMC’s contributed under the CO-20 plan and have to re-contribute the AMC’s at the higher CC-20 rate back to his/her start date (or 8/4/93, if the start date was earlier).

In 2004, Chapter 622 created a unified plan for the NYC Correction Force for all new (10/19/2004) members and addressed the problems in the CC-20 Year Plan for existing members. There are now four retirement plans covering the UCF: C-25, CO-20, CC-20, and CF-20. Two of these, CO-20 and CC-20, will phase out over the next 20 to 25 years. There was approximately 9,200 Correction Force members in NYCERS at the time Chapter 662 was passed.

In addition to the creation of the new plan, Chapter 622 amended the CO-20 and CC-20 plans to provide for the return of AMC’s, required by the CO-20 and CC-20 plans, upon the death of a member in either one of those plans. The AMC’s plus the associated interest (5% per annum) would be paid to specifically designated beneficiaries or to the member’s estate.

Corrections to existing plans

One of the main objectives of Chapter 622 was to provided corrective actions to the CC-20 plan. Unfortunately they very convoluted because of cost factors involved with the corrections. They are:

  1. It provided a reopener filing period (120 days starting on 10/19/2004) for members who were Correction Captains or in titles above captain but in the old C-25 plan. Such members had the option to retroactively join the CC-20 plan. The entry date into the plan would be the date of their promotion or 8/4/1993 which ever is later.
  2. The AMC contribution rates were lowered for service after 10/19/2004 as follows:.
    • For NYCERS members who became captains before 11/1/1992, the rate was lowered from 5.59% to 5.11%.
    • For members who became captains on or after 11/1/1992 from 7.46% to 5.11%.
  3. The rates for retroactive AMC’s for the period from 12/19/1990 to 8/4/1993 were lowered to 5.11%.
    • It was 5.59% for NYCERS members who became captains before 1/1/1992.
    • ,
    • It was 7.46% for members who became captains on or after 11/1/1992.
  4. The rates for retroactive AMC’s for members who become captains or above for the first time on or after 10/19/2004
    • who became a correction officer before 7/1/1988, the rate is 5.11% for C.O. service rendered after 12/19/1990.
    • who became a correction officer on or after 7/1/1988 and
      • were in the CO-20 plan on 10/18/2004, the rate is 3.61% for C.O. service rendered after 12/19/1990.
      • were not in the CO-20 plan on 10/18/2004, the rate is 5.11% for C.O. service rendered after 12/19/1990.
  5. Members in the CC-20 plan can now use AMC’s contributed while in the CO-20 plan , along with interest, on deposit with NYCERS as of the date they become a participant in the CC-20 plan to cover deficiencies in their AMC account under the CC-20 plan. For members who elect the CC-20 plan during the 120 re opener period, the date for crediting the CO-20 AMC’s is the date that the member files the election.
  6. A member in the CC-20 plan who retires with 20 or more years of “credited service” on or after 10/19/2004 and has an excess (including interest) in his/her AMC account at retirement, will receive a refund of the excess (including interest) at retirement.

CF-20 Retirement Plan


Any employee in “city service” who first joins NYCERS (or any other NYS/NYC public pension system) after 10/19/2004 and becomes a Corrections Officer, at any time, is mandated into the new CF-20 Plan. This plan is not open to any current Correction Force NYCERS member who joined NYCERS before 10/19/2004.

If you are a member who joined NYCERS before 10/19/2004 and becomes a Corrections Officer at anytime, you are eligible for the CO-20 Plan with the following provision:

  1. Optional, if membership date is on or before 12/19/1990
  2. Mandatory, if membership date is after 12/19/1990

If you joined NYCERS before 10/19/2004 and become a Corrections Captain (or above) at anytime, you are eligible for the CC-20 Plan with the following provision:

  1. Optional, if membership date is on or before 8/4/1993
  2. Mandatory, if membership date is after 8/4/1993
Credit Service & Earliest Retirement Date:

In Tier 1 & 2, the original and the improved Uniform Correction Force plans had a service requirement of 20 years of “allowable” service (generally UCF service) to qualify for the service retirement benefit.

Note: In Tier 1&2 besides NYCERS credited service in the UCF, "allowable" servcie includes 1) uniform service in the NYC Transit & Housing Police, in the NYC Sanitation Department credited by NYCERS and immediately preceding appointment to the Correction Force, 2) transferred service from NYC Police Pension Fund or the FDNY Pension Fund, and 3)Correction Force service purchased with NYCERS.

Initially in Tier 3, the C-25 Plan (the first UCF plan) had a service requirement of 25 years of any service credited by NYCERS as long as the member was in the UCF at the time of retirement. A member could have been a clerk for ten years and a correction officer for 15 years and then retire under the C-25 Year plan.

  • For members of the CO-20 plan with a membership date on or before December 19, 1990 the service requirement was 20 years of any service credited by NYCERS, similar to the C-25 Plan.

    However, for a CO-20 plan member who joined NYCERS after December 19, 1990, the 20 year service requirement (CO-20 Plan) became the same as the old Tier 1 & 2 service requirement, “allowable” service and not all credited service.

  • For members of the CC-20 plan with a membership date before August 4, 1993 the service requirement was 20 years of any service credited by NYCERS, similar to the C-25 Plan.

    However, for a CC-20 plan member who joined NYCERS on or after August 4, 1993, the 20 year service requirement (CO-20 Plan) became the same as the old Tier 1 &2 service requirement, “allowable” service and not all credited service.

Added Cost

In addition to the standard Tier 3 payroll contribution of 3% of salary, a CF-20 plan member must make a second payroll contribution of 4.61% of salary to NYCERS. The 3% contribution stops after 10years of regular NYCERS credited service. The 4.61%additional member contribution (AMC) stops after 20 years of qualifying Correction Force credited service.

It often happens that a NYCERS member works in a city job before being hired as a NYC Correction Officer. The NYCERS service which predates that appointment counts towards the 10 year cutoff for the 3% contribution. The 4.61% contribution only begins as of the date of the CO appointment and continues for 20 years of UCF service.

The 4.61% contribution is federally tax deferred but subject to state and local income taxes.

Unlike the standard 3% contribution, CF-20 plan members are not allowed to borrow against the 4.61% AMC's.

For any contributions not withheld from payroll, the member will be charged a deficit plus 5% interest/year compounded annually. Why would this happen? NYCERS doesn't certify the member to payroll in a timely manner. The payroll system fails to pick up the contribution. There are lots of ways things can go wrong.

The Board of Trustees may write regulations for the payment of the AMC contributions and associated interest including deductions from members' pay. CF-20 members should request copies of those regulations. They should also request a detailed description of the calculation which determines the actuarial reduction in their benefit (service or vested) due to any shortage in their AMC contributions.

If a CF-20 member with less than 15 years of UCF service (in NYCERS) leaves the UCF for any reason (like being fired or becoming police commissioner), that member may withdraw the additional 4.61% contributions plus the 5% accrued interest on those contributions.

If that member later on returns to service in the UCF, he/she will have a deficit equal to those contributions and interest, plus interest (5%) for the interim period that he/she was not in the UCF.

If a CF-20 member dies, NYCERS will pay the AMC contributions and the associated 5% interest to the beneficiary/s designated by the member. If no designation was made then NYCERS will make the payment to the member's estate.

The filing period for a service retirement applications:
  • Tier 1 & 2 have a 30 day minimum filing period during which the member had to be on payroll.
  • Tier 3 has no 30 day filing requirement but the member must be on the payroll in a NYC-UCF title immediately before the retirement date.
Service Retirement Benefit

If a CF-20 plan member has

  1. has 20 or more years of qualifying Correction Force credited service,
  2. has on deposit all of his/her AMC's, (any shortage will create an actuarial reduction but not invalidate the retirement)
  3. files an retirement application with NYCERS stating a retirement date, and
  4. is in the CF-20 plan on that date,
then the member is retired under the CF-20 plan.

The service retirement benefit payable under the CF-20 plan is:

  1. 50% * final average salary (FAS: this a 3 year average with a 110% cap)
  2. plus 1/60th * FAS * all credited after the earliest retirement date (ERD).

This benefit is capped by the benefit payable upon the completion of 30 years of service. I am not certain whether NYCERS will cap both FAS and service credit at the 30 year mark or just service credit.

Vesting and Disciplinary Actions:

UCF members in Tier 1 & 2 have a deferred retirement benefit and not a vesting benefit. This means that they have a 30 day filing requirement during which the member must be on payroll in a UCF title to be eligible for his/her deferred retirement application to be valid. If the member was terminated in the 30 day period, he/she would not be eligible to retire. He/she would, however, still be a member of NYCERS.

A Tier 3 UCF member in the CF-20 plan has no 30 day period requirement for filing a retirement application. He/she, therefore, can immediately retire before a termination process is completed and preserve his/her retirement benefit. It is somewhat perverse that a Tier 3 UCF member (CO-20, CC-20, CF-20) with between 5 and less than 20 years of qualifying service is fully protected with respect to his/her vesting benefit but once he/she moves beyond the 20 year threshold, he/she has some risk of losing his/her retirement benefit.

There is always a fall back position. If a UCF member is not eligible for a vested benefit under the CO-20 or the CC-25 Plan, then he/she is eligible for a vested benefit under the C-25 Plan (S.517, RSSL)which becomes effective after 5 years of credited service and has no service limit cutoff.

Vesting Benefit

A member in the CF-20 plan who

  1. discontinues service in the UCF with 5 or more but less than 20 years of qualifying Correction Force credited service, and
  2. has on deposit all of his/her required AMC’s, is, (any shortage will create an actuarial reduction but not invalidate the vesting benefit)
is eligible for CF-20 vested benefit.

The vesting benefit payable under the CF-20 plan is a pension equal to:

  • 2.5% * years of credited UCF service * FAS

This benefit is payable starting on the date that the member would have completed 20 years of allowable UCF service, if he/she had continued to work in the UCF. There is no formal filing requirement for this benefit. NYCERS will, however, require the member to file a form to begin paying the benefits but the form does not determine the start date as it does with a service retirement.

Friday, March 5, 2010

Is AG Cuomo investigating NYCERS?

On February 8, 2010, Attorney General announced agreements with Markstone Capital Group and Wetherly Capital Group and its broker/dealer DAV/Wetherly Financial to resolve their roles in Cuomo’s investigation into pay-to-play practices involving the NYS Common Retirement Fund (CRF). Markstone agreed to return $18M to CRF and Wetherly agreed to return $1M to CRF. Wetherly also agreed to exit the placement agent business.

Wetherly represented three private equity firms before CRF. They were Ares, Freeman Spogli, and Levine Leichtman. Wetherly was paid fees by these firms and then split the fees with Henry “Hank” Morris. NYCERS also has contracts with these three firms as well as Markstone.

In 2005, NYCERS entered into a contract with Paladin Homeland Security, another private equity firm and as of September 30, 2005 has invested $17.83M with Paladin under two different contracts. Actually, the Comptroller negotiated and signed the contract for NYCERS. The trustees are unaware of the terms and conditions of the contract. This is true of all investment contracts that the Comptroller arranges for NYCERS. Other NYC pension funds also have invested funds with Paladin.

From inception till June 30, 2009 NYCERS has paid Paladin $3.5M in fees for both partnerships. NYCERS has scheduled $837,000 for FY-2010 in fees for Paladin.

In fact, the Comptroller directly paid these fees to Paladin. NYCERS has surrendered control of payment of investment fees to the Comptroller. This means NYCERS never knows what is actually being paid by the Comptroller. The fund also does not know when the fees are paid or how they are paid.

This is in clear violation of Section 13-137 of the NYC Administrative Code.

§ 13-137 Payments from funds. All payments from such funds shall be made by such comptroller upon a voucher signed by the executive director of the retirement system.

In 1996, I had a fight with Comptroller Hevesi’s office over his attempt to short circuit this statutory requirement. For some reason the NYC Law Department folded and stated that NYCERS could violate this state law. For the record, this statute mimics the standard accounting practice of two person control, a bedrock of fraud control in any organization.

Here is the punch line. Between 2005 and 2007, Paladin paid $931,236 to DAV/Wetherly. Paladin paid this amount in return for “services” rendered in association with investments made by the NYC pension funds with Paladin. This information was included in a report prepared by Paladin and submitted to CALPERS as part of CALPERS effort at full disclosure of third party activity surrounding CALPERS investments.

Sunday, February 14, 2010

Bob North and the 8% Dilemma

This spring Bob North, the NYCERS and NYCTRS actuary, must make a very important decision. He must recommend a new assumed actuarial rate of return for the city pension systems. This recommendation has to be enacted into law and is usually effective for the next 5 years. Last year the old 8% rate expired (2004-2009). Bob chose to kick the can down the road and recommended that the old rate be renewed for one more year (C.211/L.2009, see:NYS Laws).

This sounds like a very obscure issue but it is not. This rate of return has a huge impact on the city pension costs over the next 5 years. Any reduction in the rate will greatly increase the city’s cost. Over the last ten years the pension systems have only had a 2.17% rate of return, significantly short of their 8% target. This is a big part of the pension crisis in the city.

It is bad enough that the 8% assumption leads to underfunding of the pension systems but it is creates a rationale for risky investment decisions hoping for high returns to compensate for the underfunding. You can see what a vicious cycle this is.

Because of the budget crisis there will be intense pressure on Bob North not to reduce the actuarial rate. He most likely will buckle under the pressure. This is not responsible but at least, it is understandable. The trustees, however, must abandon their current risky policies and adopt a prudent investment strategy that recognizes a lower, more realistic rate of return. The trustees must not make the situation worse.

City workers have skin in this game. Over the last ten years NYCERS members have contributed $3.3B to NYCERS from their own paychecks. In that same time period the city and the other participating employers have contributed $8B. Most of that amount was paid in the last 4 years ($6.5B: 2006 – 2009).



In 1990, NYCERS and NYCTRS appointed Bob North as the actuary for the two pension funds. BY statute, this also made him the actuary for the police, fire, and Board of Ed. pension funds. At the same time the city created a new stand alone agency for the actuary. Previously the actuary’s operations were part of NYCERS. There was no legal basis for creating this agency but the Law Department can be counted on to be creative when asked.

This was done partly to make Bob feel good about running his own agency. This really didn’t matter much until 1996. In that year however, Albany granted NYCERS and NYCTRS their own independent budgets. The law was changed for several reasons, one of which was that the city was slowly strangling the budgets of both retirement systems.

Prudently, both retirement systems should have pulled the actuary’s operations back into their agencies in order to exercise proper control of their appointed actuary. The trustees did not do this and left the actuary under the budgetary control of the mayor. Since 1990 the mayor has controlled the actuary’s salary and he still does.

Of course, the NYC Law Department never advised the retirement system trustees that as of July, 1996 they should, as fiduciaries, place the actuary within the boards’ budgetary control. The Law Department has never given the trustees comprehensive advice about their fiduciary responsibilities. That potential advice would have had to include a clear warning about the on-going conflicts of interest that exists whenever the mayor’s lawyer is giving advice to the NYCERS Board of Trustees.

On January 28, 2010 the mayor proposed cutting the actuary’s budget for FY-2011 by $222K ($4.9M down from $5.1M) and his headcount by 5 (32 down from 37). In addition, if the state goes forward with the governor’s budget recommendations, the mayor has proposed cutting another 5 positions from the actuary’s headcount and an additional $406k from the actuary’s budget.

This is a clear reason why the actuary’s operations should be directly funded by the retirement systems. In addition, the actuary should be totally transparent with respect to any work that he does for any outside agencies. He should be more active with investment issues. He should also be more responsive to 1) the operational needs of the pension systems and 2) requests for fiscal notes of proposed legislation from all responsible parties, not just the city.

FYI: This is the most current estimates of the city’s ongoing pension costs. The chart below does not include the Transit Authority, the Housing Authority, HHC, and other participating employers. These figures are based on the 8% assumption. Even with 8%, you can see that the situation is deteriorating. If the rate of return is reduced, the amounts will increase even further.

YearAs of June 2009As of Jan. 2010
FY-2014 NR$7.9B

Sunday, February 7, 2010

Who's Minding the Store: Paying $143M to lose $7.8B.

Review of NYCERS Investments for FY-2009: $7.8B loss and $143M fees

On December 31, 2009, NYCERS submitted its FY-2009 financial report (CAFR) to the national government finance association (GFOA) in Chicago.

The bottom line on NYCERS income statement showed a loss of $7.8B. That is a 19.6% loss in assets ($31.9B down from $39.7B).

For this disaster, NYCERS paid $143M in investment fees and expenses. The city and other participating employers must replace the $143M with 8% interest in FY-2010. As a reference, NYCERS paid $45M in investment expenses in FY-2003. This cost explosion is a recent development.

You can see a breakdown on the specific investment classes on a chart that I recently posted. It outlines each class’s performance and expenses for FY-2009.

As listed in the chart there are 23 asset classes. This strategy is much too fragmented and expensive for any pension plan and far too risky for a pension plan that has an annual benefit payout obligation equal to 11% of assets ($3.3B benefits, $31.9B assets).

On the rational side of this strategy, there are six of the classes with assets of $17.1B and annual expenses of $4.6M.

On the truly out of control side of this strategy, there are two classes with assets of $2.7B and annual costs of $99.7M.

It is clear to me 1) that the six classes are totally sufficient for NYCERS investment needs, 2) that NYCERS would save well over $120M per year in fees using only the six classes, and 3) that the six classes would produce a higher rate of return than the 23 class scheme.

Unfortunately, even if sanity would return to the trustees, the Comptroller's office has signed contracts that require NYCERS to submit to this legal rape and pillage. The best NYCERS could do is to stop the bleeding and drop whatever contracts that have an opt-out clause.

The trustees also need to change the investment consultant function. They need to hire a totally independent advisor with no income coming from investment managers. The consultant must commit significantly more resources to assist the trustees. The consultant must have a permanent presence at the NYCERS site so that he/she can perform comprehensive analysis of manager’s performance and be available to all trustees on daily basis.

This consulting function would most likely cost about $10M a year. It is, however, far better to have the consultant earn his/her profit from NYCERS rather than from the managers that he/she is suppose to audit and monitor.

The following are comments about specific asset classes

US Stocks

The work horse of the NYCERS portfolio is the indexed domestic stock class. Its value on June 30, 2009 was $10.0B, 31% of the total portfolio. Last year was a disaster with a -26.44% loss in this class. This class, however, always has the saving grace of having almost no cost. The 2009 fees were only 0.3 basis point of assets managed. Yes, that is less than one basis point. The annual return over the last 15 years is 6.98%.

Comment on reported returns: The Comptroller, on a quarterly basis, reports rates of return for individual managers. He/she provides no data or calculations to support the accuracy of these rates of returns.

In contrast, NYCERS actively managed domestic stock class had a -25.11% return before fees were paid. The 2009 fees were 24.0 basis points. The annual return, however, over the last 15 year is 6.26%, gross of fees. This class is a waste of time and very expensive. Pension funds should not be involved with this asset class. This is a touchy subject because of industry wide implications of this position.

A particularly questionable asset class is the domestic stocks - minority managers class. This class had a return of -27.66%. This performance is worse than other active managers. The 2009 fees for this class were 68.8 basis points. Any attempt to provide opportunities to minority managers legally should not cause any increased expense to NYCERS. This asset class borders on gross negligence by the trustees. The NYC Law Department has failed to properly advise their clients of their fiduciary obligations.

Minority managers also appear in the bond and international stock classes. The comments made above are also relevant in these two other classes

International Stocks

Actively managed international stocks had a return of -32.2% last year, gross of fees. The 2009 fees were 32.6 basis points. This class has had extensive turnover the last three years reflecting the risk in this area. It also has the same performance flaw as the actively managed domestic stock class. International stock exposure should be handled on a country structured indexed basis.

NYCERS indexed international stock manager had a return of -30.68% last year, gross of fees. The 2009 fees were 1.7 basis points. This class needs to be broken down to a country grouping. As an example, Japan has a heavy weight in this index and has pulled down the index’s performance.

The emerging market stock class had a return of -31.41% in 2009, gross of fees. The fees were 36.9 basis points. This class should also be shifted into the index class. If a country doesn’t have a reasonable index, NYCERS should not be invested in that country.

US Bonds

NYCERS has a long standing effective domestic bond program. Listed below are the four traditional classes with their 2009 returns and fees:

  1. investment grade corporate bonds, return = 2.44%, fees = 2.6 basis points

  2. government bonds, return = 7.04%, fees = 7.4 basis points

  3. mortgage backed bonds, return = 6.26%, fees = 7.0 basis points

  4. dollar denominated foreign bonds, return = -5.62%, fees = 7.7 basis points

  5. .

The dollar denominated foreign bond class performed poorly in 2009 but has a good performance history and its fees are comparable to that of domestic corporate bond class.

The high risk domestic bond class had a -1.28% return last year, gross of fees. The fees were 27.9 basis points. The annual return for the last ten years has been 4.88% while the corporate bond return has been 5.58% and has fees in the range of 7.4 basis points. This high risk class just can not compete with high grade corporate bonds.

In 2008, NYCERS began investing in convertible bonds. This class is just inappropriate for a large pension fund which has both equity and fixed income investments. The return was -13.19% and the fees were 39.2 basis points. The high basis point number is a tip off to stupidity.

The actively managed inflation protected government bond (TIPS) class is too expensive when compared to the standard government bond class. The inflation protection is not sufficient to justify this class’s severely discounted rate of return. This also applies to the index TIPS class.

Unregistered Investments

At the end of the list of investment classes are two classes that have gotten completely out of control. They are private equity and real estate partnerships. Both classes are illiquid and have no published market value.

The fees for private equity were $81.7M and for real estate were $15.3M. The consulting fees for these two classes were $2.7M

This is 70% of the total annual investment expenses for the entire portfolio but the asset classes have a book value of only $2.7B or 8.8% of the portfolio. The private equity class has 116 partnerships. NYCERS did not report fees paid for 26 of them. The real estate class has 30 partnerships. NYCERS did not report fees for 8 of them. This is a sign of NYCERS's lack of financial control over the payment of fees to all managers. What is particularly questionable about these two classes is that $25M of the $99.7M is classified as organizational costs. That means NYCERS is not reporting who or why this money was paid. There is a high potential for fraud when controls are not present.

While NYCERS does not report rates of return on either of these classes, the real estate class dropped in value from $1.2B to $.886B in FY-2009.


In hind sight, it is always easy to criticize. The trustees’ investment decisions over the last ten years, however, have been purposely aggressive. This was done in the hope of keeping employer contributions lower than they would have been if the trustees had followed a more conservative strategy. It is perverse that, overall, the conservative strategy would have been less expensive for the employers. This is the price of incompetence.

While there is a growing funding problem at NYCERS (it is much worse at the other four city systems) caused partly by benefit enhancements that were enacted in 2000, the main source of this problem is the underfunding by participating employers and the investment failures by the NYCERS trustees.

I will not even comment on the campaign contribution issue.

Wednesday, January 27, 2010

NYCERS Assets Classes and Investemt Fees for FY-2009

I have listed below the NYCERS investment asset classes. You can also see the June 30th closing balance, the annual rate of return, and the fees for FY-2009. NYCERS does not present investment expenses in this format but it connects investment decisions with their corresponding costs.

For the record NYCERS reported that it incurred $138.2M in investment expenses but actually paid out $143.7M in FY-2009. Particularly notice the fees for the unregistered asset classes at the end of the chart.

Assest ClassValue as of EOYRate of ReturnInvestment Fees
Domestic-Indexed $10,027.49M-26.44%$295,108
Domestic- Actively Managed $2,236.12M-25.11%$5,372,371
Domestic- Minority Managers $463.38M-27.66%$3,189,767
Global-Environmental $217.49M-26.93%$1,066,542
Global-Activist $497.64M-13.96%not reported
International-Indexed $713.11M-30.68%$121,603
International-Actively Managed $2,852.50M-32.20%$9,288,427
International-Minority Managers $30.32M-30.00%$463,969
International-Emerging Markets $823.56M-31.41%$2,989.974
Domestic-Government $994.67M7.04%$261,158
Domestic-Federal-TIPS-Active $647.43M-0.56%$828,230
Domestic-Federal-TIPS-Indexed $212.83M-1.24%$13,784
Domestic-Corporate $1,641.72M2.44%$1,211,612
Domestic-Mortgage $3,145.07M6.26%$2,200,054
Domestic-High Risk $1,875.83M-1.28%$5,238,162
Domestic-Minority Managers$82.18M7.86%$311,276
Domestic-Convertible $329.56M-13.19%$1,293,305
Domestic-Distressed $116.67MNRNR
Domestic-Targeted Housing $303.65M8.92%$656,432
International $45.9MNR$27,498
International-Dollar Based $594.49-5.62%$457,874
Private Equity-Partnerships $1,900.90MNR$58,232,565
P.E. Organization Costs NANA$23,508,327
Real Estate-Partnerships $885.68MNR$13,635,566
R.E. Organization Costs NANA$1,632,330
Cash-In House $267.05M2.68%NA
General NANA$844,821
Private Equity NANA$2,361,071
Real Estate NANA$355,326
Legal Costs NANA$622,026

Saturday, January 23, 2010

Part C - Tier 5 - UFT Covered Employees at TRS & BERS

This is the city’s first agreement with a city union with regards to the “Tier 5” pension reform.

It applies to UFT members of TRS and BERS. There are other members in these two retirement systems who are not covered by the UFT. They are not yet subject to this law. It is most likely that they will be covered by a future negotiated pension reform statute.

All UFT members who join TRS or BERS on or after 12/10/2009 are subject to the following benefit reductions.

  • First, they can not retire until they have at least 10 years of credited service. Previously, the requirement was 5 years.
  • Second, they can not vest until they have 10 years of credited service. Previously, it was 5 years.
  • Third, they must contribute 3% of earnings for 27 years. Previously, it was ten years.
  • Finally, as members of the 27/55 Plan, they must contribute 1.85% of the earnings for all their service. Previously, it was 27 years.

In addition, all UFT members of TRS and BERS, old and new, will earn only 7% interest on the fixed income option of their TDA account (IRC 403-b). Previously, the guaranteed interest rate was 8.25%. This reduction is still a dynamite benefit in this crippled economy. I suspect this reduction also applies to the Chancellor’s TDA plan which covers employees of the Board of Ed.who are not members of either TRS or BERS.

This does not change the interest rate on new TDA loans. The old rate stays in effect, unless the associated Boards change the rules that specify the rate of interest on these loans. TDA (403-b) accounts are only available to Board of Ed employees.

The 457 and 401-k plans for city employees are handled by OLR. They, in sharp contrast, do not have guaranteed fixed rates of return. This guaranteed rate has been a heavy load on the city and there has been no real visibility to this problem.

There is also an operational directive included in this new law. This is unusual. The statute states that if a member (TRS or BERS) elects to move funds from his/her fixed TDA account to his/her variable TDA account, then “the retirement system shall effectuate such transfer as expeditiously as is administratively feasible”. (I borrowed the exact phrase). There appears to have been a problem in the past with TRS & BERS moving money quickly enough between different investment options.

Part C is effective as of 12/10/2009.

Part B - Tier 5 - State and Local (excl'd NYC)

Part B reflects an agreement between the state and the 4 major state unions, the CSREA, the NYSUT, the Court Officer unions, and the state correction force unions. New members of NYSL-ERS and NYS-TRS systems are impacted by Chapter 504 (“Tier 5”).

The effective date for Part B is Jan. 1, 2010.

Sections.1-4 deal with new Tier 3 members in the NYSL-ERS system only.

Tier 3 applies to State and city uniform correction force employees, and for the time being new NYPD and FDNY employees. Part A, above, returned new police officers and firefighters outside NYC to Tier 2. They had been trapped in Tier 3 since July 1, 2009.

(Sections 1-4) These new state correction force members are still covered by Tier 3 but are subject to certain new benefits reductions. These reductions apply only to employees (state correction force) who join NYSL-ERS on or after 1/1/2010:

  1. OT in annual wages is capped at $15,000 in 2010. The cap increases by 3% each year.

  2. Ten years are needed to retire for service. Previously, it was 5 years.

  3. Early retirement reductions for members between ages 55 to 60 have increased to 5% per year up from 3.33% per year. -- The age 60 to 62 reduction stays at 6.66% per year. This comes into play for a state CO with less than 25 years of service. All correction force members can still retire at 25 years of service at any age without age reduction and Social Security reduction. City correction force members have special 20 year plans.

  4. Ten years are needed for the deferred vested benefit. Previously, it was 5 years. This benefit is payable at the projected 25th year of service (generally).

Sections. 5 - 10 deal with new Tier 4 members (1/1/2010).

(Section. 5) All NYSLERS and NYSTRS members who join on or after 1/1/2010 will have a $15,000 cap on annual overtime wages being used in the statutory definition of wages for 2010. Any benefit keyed into wages will have all OT over $15,000 excluded from the wages for 2010. In each succeeding year the $15,000 limit will be increased by 3%that year. (i.e. 2011: $15,450, 2012: $15,913.50).

This is less harsh than the limit on the police & fire. But police & fire may be retiring with basic comp bases higher than $100,000. The 3% increase will come in handy later on. Police & Fire get no annual increase in the limit.

(Section. 6) All NYSLERS and NYSTRS members who join on or after 1/1/2010 must have ten years of credited service to retire. Previous to that date, it was 5 years.

(Section. 7) NYSL-ERS & NYS-TRS members who join on or after 1/1/2010 are no longer eligible to retire without penalty at age 55 and 30 years of service. New court officers, however, can still retire at age 55 with 30 years of service but they now must contribute 4% of pay for all service instead of 3%.

(Section. 8) For NYSL-ERS and NYS-TRS members, who join on or after 1/1/2010, may retire with more than 10 years and age 55 with the following reductions:

  • for the 24 months preceding age 62, 1/15 (6.66%) per year (previous, .5% per month, 6%/yr.),

  • for the 60 months preceding age 60, 1/20 (5%) per year (previous, .25% per month, 3%/yr)).

(Section. 8-a) NYS-TRS members, who join on or after 1/1/2010, are age 57 and have 30 or more years of service, may retire without reduction. (Requires an increase to 3.5% in the contribution rate on all service. Previously the rate was 3% for 10 years of service).

(Section. 8-b) NYS-TRS members, who join on or after 1/1/2010, now need 25 years of service to be eligible for 2% service credit. The service credit under 25 years is 1.67%. Previously, the threshold was 20 years.

(Section. 8-c) When NYS-TRS members, who join on or after 1/1/2010, elect to buy back service they will have to purchase the service at a rate of 3.5% rather than 3%. The interest rate stays at 5 %.

(Section. 9) All NYSL-ERS and NYS-TRS members who join on or after 1/1/2010 will have to have ten years of credited service to be entitled for a deferred vested benefit. Previous to that date, it was 5 years. This benefit is payable at age 62 without reduction or between ages 55 to 62 with the new reduction percentages (6.66%:61-62 & 5%:55-60)

(Section. 9-a) Court Officers who join NYSL-ERS on or after 1/1/2010 must contribute 4% of annual earnings. Members who join the NYS-TRS on or after 1/1/2010 must contribute 3.5% of annual earnings. The previous contribution rate for both groups was 3%.

(Section. 10) All NYSL-ERS and NYS-TRS members who join on or after 1/1/2010 will have to contribute 3% (3.5% for Court Officers, 4% for NYSTRS), for all years of credited service to retirement. Previous to that date, the contributions stopped after 10 years of credited service.

There are no Sections. 11-13.

(Section. 14) This section makes permanent a prohibition applicable to school districts and other associated education employer. The prohibition prevents them from reducing the heath insurance benefits of retires or the contributions made for that coverage, unless there is a corresponding reduction for the corresponding active employees for such retirees. This is obviously a protection to retirees and not a cost cutting measure.

(Section .15) This section states that the legislature intends to enact a law to offer a 3 month period in 2010 for members covered by NYSUT in both state pension systems with 25+ years of service and age 55+ allowing them to retire early without penalty.

Part A - Tier 5 - NYS Police & Fire

Part A of Chapter 504 deals with new police officers and firefighters who work in NYS and join NYS-PFRS on or after 1/1/2010. It also provides an election process for such members who joined NYS-PFRS between July 1, 2009 and December 31, 2009. Chapter 504 does not effect NYPD and FDNY. The NYSLERS web site has a nice PDF chart comparing the old and new benefits.

Part A is effective January 9, 2010, 30 days after 12/10/2009.

The significant feature of Part A is the creation of Article 22 (Tier 5) which is a reduction overlay on Tier 2.

It impacts all such police officers & firefighters who join NYS-PFRS on or after 1/1/2010. These employees are again covered by Tier 2 but with Article 22 reductions.

Police officers and firefighters outside NYC who have joined NYS-PFRS on or after 7/1/09 but before 1/1/2010 are covered by Tier 3.

Chapter 504 provides a 120 day election period in which these employees may elect to have their benefits recalculated according to Tier 2 with the new Article 22 reductions. The wording is strange. They are not electing to be subject to Article 22, only to have their benefits recalculated according to Article 22/Tier 2.They may elect to have their benefits calculated using Article 22 and Tier 2. These members appear to retain Tier 3 rights but will generally be receiving benefits under the new Article 22/Tier 2 structure.

New NYC police officers and firefighters who were hired on or after 7/1/2009 are still trapped in Tier 3. Such members have automatic membership in NY-PPF and NY-FPF as of the date of their hire.

According to Chapter 504, Tier 2 coverage for state police officers and firefighters picks up again on January 1, 2010 and no longer has a end date as it did up to June 30, 2009. There was temporary break with Tier 3 coverage between July 1, 2009 and December 31, 2009.

Interestingly, when Tier 2 was enacted in 1973, it was a reduction overlay on Tier 1. In contrast, Tier 3 and Tier 4 are new stand alone benefit structures.

ITHP benefits in Tier 1 and 2 are no longer subject to periodic renewal. This is actually a benefit to NYC Police and Fire pension members.

All supplemental retirement allowances or pensions are no longer subject to periodic renewal.

Tier 3 becomes permanent and not subject to periodic renewal. As of present only NYC police officers and firefighters and NYS and NYC correction officers are covered by Tier 3.

Employees who are eligible and become Tier 4 members after 8/23/1983 had no rights under Tier 3.

Tier 4 has now become permanent and not subject to periodic renewal.

Article 22 (Tier 5) for NYS police officers & firefighters employed outside of NYC who join the NYS-PFRS on or after 1/1/2010 imposes the following reductions on Tier 2:

  1. service retirement requires 10 years of creditable service. It was 5 years

  2. military service under Sections.302.29-a and 302.30 (RSSL) is included

  3. Overtime (OT) above 15% of non OT wages is excluded when calculating 3 year average. There is still a 20% cap for each year compared to the avg. of prev. 2 years.

  4. Members must contribute 3% of annual wages. Contributions stop when member reaches service cap. (usually 30 years, but could be different). This money will not provide any type of annuity. Previously NYS-PFRS was a non-contributory system. There is no mention of applicable interest rate or the return of these contributions in case of separation from service, termination or death. This will have to be corrected in the future.

  5. Tier 3 NYS-PFRS members (join after 7/1/2009) may elect to have benefits calculated under Article 22. Such members must file within 120 days after the enactment date (1/9/2010). Chapter 504 appears to have created a special small group who joined NYS-PFRS between 1/1/2010 and 1/8/2010. They technically have rights under Tier 3 and Article 22/Tier 2 without the need of making an election. NYS-PFRS will probably make some administrative rule dealing with this issue.

    Note: This was done in funny manner. I would have had them elect to be subject to the provisions of Article 22. I am not clear that this election actually gives these members rights under Tier 2. This possible problem, however, can be handled administratively, since it is clear that the legislature wanted to offer the opportunity to choose Tier 2 with Article 22 limitations.

  6. Provisions of Article 22 (Tier 5) takes precedent over conflicting provisions of Article 11 (Tier 2). Tier 5 members (NYS-PFRS) are essentially Tier 1 members with Tier 2 and Tier 5 benefit reductions.

The New "Tier 5" Law

Last December, the governor singed the new state wide “Tier 5” pension law (December 10, 2009 - Chapter 504). It does not, however, impact most new NYC workers, yet. It does, however, cover city workers who are represented by the UFT and are members of TRS or BERS.

It is reasonable to expect that the state legislature will enact a second “Tier 5” law this spring covering remaining city workers who join a city pension system after this new law becomes effective. You can gauge the outline of the new city law in the structure of this new state law.

While Chapter 504 is a pension benefit reduction law, it doesn’t really create a new pension tier. It imposes benefit reductions within the frameworks of the existing Tiers 2, 3, and 4.

Technically, Tier 2 is a reduction structure placed on top of the old Tier 1 model.

This law is really three laws in one, representing agreements between the effected employers and the unions representing the associated employees.

  • - Part A applies to State & county police officers & firefighters.
  • - Part B applies to general state & local workers & teachers outside NYC.
  • - Part C applies to NYC teachers and workers who are both represented by the UFT and eligible to join TRS and BERS.

New York City was only involved with Part C which represents a deal between the city and the UFT and effects only TRS and BERS members. The following are write ups on the three parts:

Part A: Tier 5 for Members of NYS-PFRS

Part B: Tier 5 for Members of NYSL-ERS & NYS-TRS

Part C: Tier 5 for Members of NYC-TRS & NYC-BERS

Monday, January 4, 2010

Perjury at NYCERS - Suprise arrest at FDNY

On November 20, 2009, DOI issued a press release announcing the arrest of Jennifer Ramsammy. She is accused of falsifying her time records while working at the NY Fire Department. The false records resulted in $428 of fraudulent pay. The Kings County District Attorney has charged her with 19 felony counts.

Ms. Ramsammy has worked in the pension bureau at FDNY since 2007. Prior to 2007, she worked at NYCERS. She left NYCERS under a cloud relating to her time records. Ms. Ramsammy is the cousin of Felita Baksh (a.k.a. Ramsami), the HR director at NYCERS. Prior to 2004, Ms. Baksh worked at FDNY.

Currently Fenella Ramsami, Ms Baksh’s sister, works at the NYC Department of Finance. Prior to that she worked at the NY Fire Department and before that at NYCERS.

Prior to the mayor asking for her resignation, Martha Stark was the Commissioner of the Department of Finance and the Chair of the NYCERS Board of Trustees.

DOI is currently investigating a work related perjury charge against Ms. Baksh. DOI is also investigating Ms. Stark at the request of the mayor.

Maybe, all of these issues are connected.