Sunday, April 30, 2017

Deficits at Retirement

In 2000, the NYS Legislature passed a law which changed the contribution requirement for Tier 4 members of all public retirement systems in New York State.

Starting in 2000 any Tier 4 pension member who had earned 10 or more years of credited service no longer had to contribute the standard 3% payroll pension deduction. By 2012, just before the Tier 6 modification of Tier 4 removed the 10 year cutoff of the 3% contribution requirement, there were approximately 135,000 NYCERS Tier 4 members who were entitled to this 10 year cutoff.

This 10 year cutoff obliged NYCERS to confirm exactly when a Tier 4 member had earned 10 years of service. This was not just the member’s 10 year anniversary of joining NYCERS.

Specifically, this meant that NYCERS had to determine exactly when a member earned and paid for 10 years of service. In addition, NYCERS had to blend into this calculation any of the member’s prior service buyback applications. Buyback payments could be fully completed before the 10 year cut over occurred or they could overlap the 10 year boundary. In which case, the 10 year boundary was a moving target, since buyback service counted towards the 10 year service requirement after two years of membership service earned after joining NYCERS.

Needless to say this inspired a huge increase in early service buybacks. Four years of buyback purchased after the second year of membership could provide relief from paying four years of regular 3% contribution. Buying the service after completing the ten years of membership, however, would provide no added relief.

To automate this process I directed the IT staff to develop a required amount system that computed the required 3% contributions that each member needed to have on account at NYCERS to be credited with 10 years of service. This included all service that the member had worked as a member, transferred from another NYS system, or that the member had applied to purchase under the buyback law. The system also displays what the member has actually contributed at that point.

At the start of every year, driven by the service history system, a list of Tier 4 members were marked for review during the year as candidates for earning 10 years of service. As part of the review, staff would use the required contribution system to check whether the member had the needed contributions plus interest earned for the 10 year cutoff date. The system allowed for a request for any date. This enabled staff to hone in on the specific date that the 10 years was achieved.

This means that every Tier 4 member should have been checked for required contributions in or around his/her 10 year service date.

So why is NYCERS sending deficit letters to Tier 4 members after they have applied for retirement when they should all have been checked at their 10 year service date? We all know NYCERS must correct its errors. The question is why is NYCERS making the errors in the first place, especially for an agency that is so well funded?

Also why is it taking six to eight months as opposed to two or three months to produce option letters for new retirees? Forget about updating the old legacy IT systems. Thank god those systems are still working.

As far as notice and transparency, it is clear to me that the information from this and many other in-house systems should have been made available on the NYCERS website over the last 12 years.

Closing note: NYCERS will need an extremely bright experienced honest manager to fill the position of Executive Director. There are massive problems that have built up over the last 12 years that this person will have to correct.

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