Reality Comes to NYCERS -- Funding Status 2007 - 2013

Below is the NYCERS funded ratio for the last seven years. It charts out a serious problem for NYCERS and in turn for the members, retirees, and the taxpayers of New York City.

This problem is in large part due to the failure of the NYCERS trustees to properly invest the assets of the fund over the last 14 years. See NYCERS income statement history .

Over the last 14 years NYCERS has earned an annual rate of return of 2.11%. From my calculations the index/core strategy would have enabled NYCES to achieve a 3.59% return over the same period. Both of which are significantly short of the 8%/7% actuarial interest rate (AIR) that NYCERS has been using for the last 14 years.

This is a classic "Catch 22" situation. The 8%/7% allowed the city to contribute less to NYCERS in the short term but motivated the NYCERS trustees to adopt an irresponsible investment strategy which allegedly would achieve the 8%/7% target. The end result was under-funding, underperformance, and ironically causing the city to pay more to NYCERS over the long run.

I do not have any concrete evidence of corruption but at some point incompetence rises to the level of criminal.

As of FY-2000, NYCERS had 71% of its assets in a index/core strategy. In 2013, NYCERS had only 39% in a index/core strategy and another 16% in illiquid assets which create uncertainty about the real value of the assets.

Fiscal Year	Actuarial Assets	Accrued Liability	Unfunded Liability	Funded Ratio	Covered Pyrl	Unfunded as % of Pyrl
2013	$42.41B	$65.27B	$22.86B	65.0%	$12.23B	186.9%
2012	$40.33B	$62.94B	$22.50B	64.2%	$12.10B	185.9%
2011	$41.71B	$53.05B	$11.34B	78.6%	$11.88B	95.5%
2010	$40.72B	$51.11B	$10.39B	79.7%	$11.31B	91.9%
2009	$38.93B	$49.25B	$10.33B	79.0%	$10.76B	96.0%
2008	$38.37B	$46.60B	$8.23B	82.3%	$10.13B	81.3%
2007	$39.69B	$39.80B	$0.10B	99.7%	$9.67B	1.1%
....	....	....	....	....	....	....
2000	$42.39B	$42.42B	$0.03B	99.9%	$7.87B	0.3%

As of July 1, 2011 NYCERS changed actuarial valuation methods going from "frozen initial liability" to "entry age". In simple English, NYCERS started using a real actuarial method as opposed to a delusional one. And I mean "deluuusional" in the way Lewis Black uses it in his comedy routines. NYCERS also switched actuarial interest rates from 8% gross of expenses to 7% net of expenses.

You can clearly see how the NYCERS pension liabilities jumped from $53.1B to $62.9B in 2012 because of the switch from 8% to 7%. You can just imagine what the accrued pension liabilities would be if the actuary used the real rate of return of 2.11%. A straight linear projection would produce an added $50.0B. That is the cost of bad investment decisions.

In 2008, the NYCERS actuary started providing the "entry age" numbers as supplementary information in the CAFR in order to supply the public with better disclosure on NYCERS funding status. That is why my chart changes dramatically from 2007 to 2008. Page 127 in the FY-2013 NYC CAFR shows the the change occurring in 2012 instead of 2008. Everyone tries to delay bad news.

Any funded ratio below 80% is a sign of trouble. The other four city pension funds, unfortunately, have much lower funded ratios than NYCERS.