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.

Background

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

Participation:

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.