$5 Billion Fire Sale for the New York City Pension Funds

On Tuesday, May 27, the Comptroller issued the followowing release:

New York, NY — New York City Comptroller Brad Lander and trustees of the five public pension systems announced the successful completion of a landmark $5 billion private equity secondary sale across the City’s systems today. This transaction, initiated in December 2024 and finalized this month, represents one of the nation’s largest ever pension-led secondary sales.

The following news clip provides a little more detail:

Blackstone’s Strategic Partners has acquired a $5bn private equity portfolio from the New York City Retirement Systems, marking one of the largest secondary transactions ever completed by a US public pension, according to Bloomberg. The transaction includes approximately 450 limited partnership interests across 125 funds managed by 75 general partners. According to a statement from the NYC Comptroller’s Office, the sale forms part of a strategic portfolio realignment rather than a liquidity-driven divestment.

The formal auction, which launched in December 2024, attracted over 80 secondary market participants. Evercore acted as financial advisor, with Morgan Lewis providing legal counsel. While financial terms were not disclosed, secondary transactions of this scale are typically completed at a discount to NAV, reflecting the complexity and illiquidity of mature fund stakes.

The deal comes amid a surge in secondary market activity as institutional investors seek to rebalance private equity allocations amid slower M&A and IPO exits, higher interest rates, and limited distributions. The NYC Retirement Systems’ private equity returns have underperformed national peers, with fiscal year 2024 gains of 4–5%, compared to 10.9% at CalPERS and 8.6% at CalSTRS.

With over $270bn in AUM across five pension funds serving teachers, civil employees, firefighters, police, and education workers, the NYC Retirement Systems’ sale signals a potential re-evaluation of long-term private market exposure.

Blackstone’s Strategic Partners, which has raised over $67bn across asset classes, continues to cement its position as one of the largest players in the secondaries market.

According to the June 30, 2024 NYC annual financial statement, the five city pension funds allegedly had $67.2 billion in alternative investments.

The big question is how much of loss did the pension funds absorb because of the sale. The Comptroller has not given any accounting details.

Tax Reform for the 99% and Fixing the Federal Deficit

Towards th end of this post is a chart of the current Trump marginal tax rates for 2025 along with more fair and progressive marginal rates. Below that chart is an other chart with details of the federal income tax collected for 2022. The current Trump rates were put in place in 2018 and scheduled to stop in 2025. Trump is pushing to make them permanent.

If you compare the two sets of marginal rates, you can see that the Trump rates are very regressive favoring the rich (the 1%) and the fair rates are very progressive favoring the less well off.

If you look at the range starting at $626,350, you will see the first occurrence of the top marginal rate, 37%. The the current range stays flat from that dollar amount on up without any limit.

This is the key feature of the Trump tax cuts along with the destruction of the alternative minimum tax. In fact in 2022, the average total tax rate was 27% for anyone filing taxes with income covered by the 37% marginal tax rate.

Federal Deficit for 2022

Since 2022 is the most recent year that the IRS has published data tables, I am focusing on the federal budget deficit for 2022. The deficit is very straight forward. The government spent $6.3 trillion and took in only $4.9 trillion, a $1.4 trillion short fall. See the image below.

Unfortunately, the FY-2024 deficit was worse, $6.8 trillion vs. $4.9 trillion, a $1.9 trillion shortfall.

The "not serious" peolple call for cutting spending to close the deficit. However, you can only trim a spending budget so much. "Serious" people go out and get a second job to cover their basic expenses. For the federal government a second job comes down to raising taxes and not on poor people but on very rich people. With simple arithmetic, this means the federal government needs to raise an extra $2.0 trillion every year.

Note:
The corporate income tax rate is currently 21% and it needs to be raised back to at least 30%.
I don't think taxing corporate profits is a good way to raise revenue
but until we get a wealth tax, we don't have an alternative to the corporate tax system.
Note:
The income limit on FICA taxes also has to be eliminated.

The "1%" War on Taxes

Since 1960, the "1%" has waged an intense and successful war on the fairness of the federal tax code.

• The top marginal rate was 91% in 1960.
• The top marginal rate was 70% in 1980.
• The top marginal rate was 39.6% in 2000
• The top marginal rate is now 37%.

Under Trump, people with taxable incomes below $10,000 pay a 10% marginal tax rate. While people with taxable income over $500,000 pay only a 37% marginal tax rate. You can see why rich people love Trump.

Why any poor person voted for Trump is insane.

In 2022,

• a person earning $40,000 paid 10.2% in federal income tax.
• a person earning $75,000,000 paid 11.95% in fedral income tax.
• a person earning $150,000 paid 13.92% in federal income tax.
• a person earning $20,000,000 paid only 26.79% in fedral income tax.

The federal income tax, obviously, is based on income earned during the year. It is not a tax on net worth.
As of 2024 the top 1% in the US had a net worth of $49.2 trillion, while the bottom 50% had a net worth of $4.0 trillion.
This wealth disparaty does not enter into the income tax calculation.

The 1% do not want a progressive income tax system but the 99% needs to demand that the major part of the burden of financing the government be born by the citizens who most benefit from the success of the country.

The objective of the progressive marginal tax rates is to shift the 55%/45% distribution of the tax burden to a 33%/67% distribution with the 1% carrying the 75% share.

Why should the 1% pay the 67%? Because they are insanely wealthy and without the protection of the 99%, their wealth would be at risk.

Taxes in 2022

In 2022, the IRS collected $2.1 trillion dollars in personal income tax.

Of that amount the bottom 98.59% paid $1.155 trillion and the top 1.5% paid $0.945 trillion.
The progressive tax rates would have raised about $4.0 trillion and given the 91% a lower tax bill

In order to close the federal budget deficit, the federal government needs to collect at least $4 trillion in personal income tax as well as a siginificant increase in corporate income tax and lifting the income cutoff of Social Security taxes.

A proposed progressive marginal tax rates will, if applied to all taxable income ($11.404 trillion), generate approxmately $3.0 trillon return with close to $2.0trillon coming from the wealthest 1.5% of the filers and $1.0 trillion from the rest.

Marginal Tax Rates for 2025

Start	End	Current Marginal Rate	Proposed Marginal Rate	% of Total AGI(2022)	Taxes Paid in 2022 with Trump Rates (biilions)	Estmated Taxes Paid in 2022 with Altenative Rates (billions)	Avg. % of Taxable Income Paid with Proposed Marginal Rates
$0	$11,925	10%	3%	.5%	$0.2	$.02	2%
$11,925	$48,475	12%	8%	12.4%	$63.7	$32.0	5%
$48,475	$103,350	22%	14%	18.8%	$213.2	$135.7	7.2%
$103,350	$197,300	24%	20%	24.0%	$397.7	$331.4	11.6%
$197,300	$250,525	32%	32%	19.5%	$143.1	$143.4	19%
Break Point
$250,525	$626,350	35%	48%	(part of 19.5%)	$334.7	$382.4	22%
$626,350	$1M	37%	50%	7.6%	$254.3	$343.2	34%
$1M	$1.5M	37%	69%	2.9%	$110.8	$206.7	51%
$1.5M	$2M	37%	80%	1.7%	$67.3	$145.5	62%
$2M	$5M	37%	85%	4.2%	$166.0	$381.4	68%
$5M	$10M	37%	87%	2.4%	$96.5	$226.9	69%
$10M	and up	37%	96%	7.1%	$289.1	$658.9	70%
Total					$2,098.9	$2,998.5

Federal Income Taxes for 2022

AGI Range	Number of tax returns for range	% of total range	Total AGI for the range	% of total AGI	Taxes Paid	% of taxes to AGI
All	161M	100.0%	$14.834T	100%	$2.099T	14.15%
Under $50K	87M	52.0%	$1.909T	12.9%	$63.795B	3.34%
$50k to $100K	39M	24.2%	$2.782T	18.8%	$213.183B	7.66%
$100K to $200K	26M	16.0%	$3.567T	24.0%	$397.758B	11.15%
$200k to $500k	10M	6.2%	$2.891T	19.5%	$478.105B	16.54%
$500k to $1M	1.7M	1.0%	$1.124T	7.6%	$254.285B	22.62%
$1M to $1.5M	0.4M	0.2%	$0.435T	2.9%	$110.820B	25.47%
$1.5M to $2M	0.2M	0.1%	$0.255T	1.7%	$67.287B	26.44%
$2M to $5M	0.2M	0.1%	$0.621T	4.2%	$166.027B	26.73%
$5M to $10M	0.1M	0.033%	$0.363T	2.4%	$96.476B	26.59%
$10M and up	0.03M	0.021%	$1.052T	7.1%	$281.097B	23.88%

Social Security - Medicare - Fair Income Tax - Federal Debt

The Federal Deficit

• 1996 - $5.225 trillion
• 2016 - $19.573 trillion
• 2020 - $26.945 trillion
• 2024 - $35.464 trillion

As of January 2025, the US federal debt is $36.218 trillion. The debt is created by the US government spending more than its revenues and having to borrow to cover the short fall. This can be remedy by spending less, collecting more revenues or a combination of both.

This debt is not caused by Social Security or Medicare benefits but actually is caused by an unfair tax system. The Trump tax cuts started in 2018.

Social Security is a pension/annuity system funded by US workers.

The figures below are from the Social Security Trustees Report for 2023.

In 2023 workers paid $1.112 trillion dollars via payroll deductions into the system.

This is 12.4% of the wages up to $160,200 of every worker in the country in 2023. This does not include Medicare taxes that American workers pay and this is also separate from the federal income taxes that workers paid in 2023.

During 2023, Social Security paid out $1,232 trillion in benefits to retirees and disabled Americans and paid $7 billion for its own admin expenses.

The Social Security Trust Fund started 2023 at $2.830 trillion and ended the year at $2.788 trillion. That is a loss of $41 billion.

The system earned $67 billion in interest (2.3%, $67/$2,829) from the US treasury bonds that it is forced to buy with any surplus assets.

This requirement is counter to any prudent investment strategy for a pension fund. A diversified strategy could easily create a $75 billion return on interest and dividends, and $140 billion in increased asset value ($2.852 trillion times 5%). That is $215 billion each year rather than $67 billion. Just think of all the wasted years in the past. Of course, the federal government would be paying higher a interest rate on its debt.

The Social Security system would be greatly strengthened by applying the 12.4% tax to incomes above $500,000 and raising the federal minimum wage for all workers.

In plain English, the Social Security system has been subsidizing the expenses of the federal government. If the Social Security Trust Fund had been allowed to follow a diversified stock/bond policy, the system would self-sustaining into the foreseeable future.

In addition, the Social Security system is not part of the current federal debt. In fact, it owns $2.8 trillion of the $36 trillion federal debt.

Social Security Trust Fund Recap for 2023

• $2.830 trillion Open Bal - 2023
• $1.233 trillion Wage Taxes
• $0.067 trillion Interest Earned
• -$1.379 trillion Benefits Paid
• -$0.007 trillion Admin Expenses
• $2.788 trillion Close Bal - 2023

Medicare Benefits for Retirees and Disabled Americans

The figures below are from the 2023 annual report from the trustees of the Medicare Trust Fund.

In 2023, American workers paid $367.2 billion in Medicare taxes (2.9%) on all wages. This is separate from federal income taxes and Social Security taxes.

The Medicare Part A trust fund increased in value during 2023. Benefits paid out, however, were $37.4 billion more than payroll taxes collected. Miscellaneous revenue items created the $12.2 billion increase in the fund.

In the future, Medicare Part A may become a major cost item in the federal budget but as of now it is not a cost item.

Medicare Part B and Part D do require federal contributions which are components of the federal budget:

• Part B - $342.1 billion in 2023
• Part D - $$93.7 billion in 2023

If the economy is growing, it helps with Medicare costs and if the economy is not doing well, it is negative for Medicare costs.

Part A Benefits

Medicare Trust Fund Recap for 2023

Part A Benefits

• $196.6 billion Open Bal 2023
• $367.2 billion Medicare Wage Taxes
• $35.0 billion Income Taxes on OASDI benefits
• $5.7 bllion Interest Earned
• -$397.5 billion Benefits Paid
• -$5.6 billion Admin Expenses
• $208.8 billion Close Bal - 2023

Part B Benefits

• $194.2 billion Open Bal 2023
• $131.2 billion Part B Premiums (25%)
• $342.1 billion Federal Treasury (75%)
• $4.1 bllion Interest Earned
• -$497.4 billion Benefits Paid
• -$5.4 billion Admin Expenses
• $172.2 billion Close Bal - 2023

Part D Benefits

• $18.3 billion Open Bal 2023
• $18.6 billion Part D Premiums
• $93.7 billion Federal Treasury
• $15.8 billion Payments from States
• $0.2 bllion Interest Earned
• -$130.5 billion Benefits Paid
• -$0.5 billion Admin Expenses
• $15.7 billion Close Bal - 2023

Federal Income Taxes for 2022

The figures shown below come from the tax tables on the IRS web site. Calendar year 2022 is the most recent year reported by the IRS and 1996 is the oldest year.

You will see from the first table below that in 2022 the total US national Adjusted Gross Income (AGI) was $14.834 trillion. In 1996, the figure was $4.536 trillion. The 2022 amount is over triple the amount from 1996.

1. In 1996,
   • tax filers with AGI under $25,000
     • represent 53% of all filers but
     • their total AGI was 16% of the total AGI of all filers.
     • their total AGI was $671 billion
     • their average tax rate was 7.0%
     • paid $34.414 billion in income taxes
   • tax filers with AGI over $200,000
     • represent 1.3% of all filers but
     • their total AGI was only 17.8% of the total AGI of all filers
     • their total AGI was $807 billion
     • their average tax rate was 28.1%
     • paid $226.112 billion in income taxes
2. In 2022,
   • tax filers with AGI under $50,000
     • represent 52% of all filers but
     • their total AGI dropped to only 12.9% of the total AGI for all filers.
     • their total AGI was $1.744 trillion.
     • their average tax rate was 5.4%
     • paid $63.924 billion in income taxes
   • tax filers with AGI over $500,000
     • represent 1.5% of all filers but
     • their total AGI significantly increased to 25.9% of the total AGI of all filers
     • their total AGI was $3.849 trillion (450% over 1996)
     • their average tax rate was 24.6%
     • paid $945.991 billion in income taxes

If the average tax rate for the top 1.5% was 50%, the total US income tax would have increased by $976 billion in 2022. The total national income tax for 2022 would have jumped from $2.099 trillion to $3.075 trillion.

Federal Income Taxes for 2022

AGI Range	Number of tax returns for range	% of total range	Total AGI for the range	% of total AGI	Taxes Paid	% of taxes to AGI
All	161M	(100.0%)	$14.834T	100%	$2.099T	15.27%
Under $50K	84M	(52.0%)	$1.744T	12.9%	$63.924B	5.39%
$50k to $100K	39M	(24.2%)	$2.782T	18.8%	$213.183B	8.25%
$100K to $200K	26M	(16.0%)	$3.567T	24.0%	$397.758B	11.28%
$200k to $500k	10M	(6.2%)	$2.891T	19.5%	$478.105B	16.58%
$500k and up	2.5M	(1.5%)	$3.849T	25.9%	$945.991B	24.60%

Details of the Top 1.5%

AGI Range	Number of tax returns for range	% of total range	Total AGI for the range	% of total AGI	Taxes Paid	% of taxes to AGI	Fairer Tax Rate	Fairer Tax Amount
$500 to $1M	1.7M	(1.0%)	$1.124T	7.4%	$254.285B	22.65%	25%	$257.206B
$1M to $1.5M	360K	(0.2%)	$0.435T	2.9%	$110.820B	25.50%	35%	$139.477B
$1.5M to $2M	148K	(0.1%)	$0.254T	1.7%	$67.287B	26.47%	45%	$104.551B
$2M to $5M	208K	(0.1%)	$0.621T	4.2%	$166.027B	26.76%	61%	$345.158B
$5M to $10M	52K	(0.003%)	$0.362T	2.4%	$96.476B	26.62%	75%	$250.306B
$10M and up	35K	(0.002%)	$1.052T	7.1%	$251.097B	23.90%	86%	$806.157B
"1%" Total					$945.991B	24.80%	49.49%	$1,902.866B

Update - Junk in NYCERS Portfolio - 2024

Runaway Investments fees

In FY-2000 NYCERS paid $37.4 million in investment fees for an asset base of $42.8 billion.

In FY-2023 NYCERS paid $489.9 million in investment fees for an asset base of $82.4 billion.

In FY-2024 NYCERS paid $572.0 million in investment fees for an asset base of $87.9 billion.

The numbers speak for themselves. There is no benefit to these radically increased fees. But the trustees have no idea what is going on.

This is a big part of the income inequality in America. This story is not just about NYCERS but every public pension plan in America.

Increasing Investment Risk

In a prior post from January 2020, I outlined a new accounting reporting requirement for government pension plans (GASB 72) mandating that plans report a breakdown of the reliability of the reported value of the plan's investments. The assets are broken down into 3 levels as listed below:

• Level-1 assets - open market - very liquid
• Level-2 assets - open market - not as liquid
• Level- 3 and NAV assets - no open market - not liquid

In addition to these crazy fees noted above, the risky Level-3 assets at NYCERS have grown steadily since 2015. On top of this growth in risky assets, in 2023 there was a law passed in Albany to raise the limit (from 25% to 35%) on the amount of Level 3 and NAV assets in a NYS public pension plan.

In the table below you will see the growth for Level-3 and NAV class assets at NYCERS.

Note: As of FY-2023 NYCERS is relabeling alternative investments as net asset value items rather than Level 3 as a "practical expedient". This is a PR sleight of hand. Nobody wants to be called Level-3. "NAV" is a lot more vague. $19.8 billion (25% of the portfolio) for Level-3 and NAV assets is an obvious red flag for the risk level of the portfolio. You can be sure that $19.8B is the upper bound for this class and that a 50% reduction is a real possibility.

Ranking of NYCERS Assets via GASB 72

Fiscal Year	Level-1 Assets (in thousands)	Level-2 Assets	Level-3 Assets	Assets at Net Asset Value	Total
FY-2014	$27,028,432	$17,437,139	$10,642,729	$0	$55,108,300
FY-2015	$27,707,076	$17,175,757	$10,796,968	$0	$55,679,801
FY-2016	$27,330,534	$15,924,399	$10,377,791	$1,123,861	$54,756,585
FY-2017	$32,312,375	$17,461,428	$10,914,801	$95,987	$60,784,591
FY-2018	$31,219,885	$23,282,843	$10,880,803	$66,675	$65,450,206
FY-2019	$34,128,310	$22,782,825	$11,534,369	$6,979	$68,452,483
FY-2020	$33,647,567	$24,941,479	$11,856,921	$3,735	$70,449,703
FY-2021	$42,162,979	$30,981,818	$14,845,548	$1,240	$88,091,585
FY-2022	$32,892,068	$26,386,373	$18,726,172	$1,129	$78,005,742
FY-2023	$35,986,966	$25,235,457	$461,156	$19,845,541	$81,529.120
FY-2024	$35,349,996	$30,145,235	$476,857	$21,630,394	$87,602,482

Investment Expenses for the Assets by Quality for FY-2024

In FY-2024 NYCERS paid the following investment management fees for the different levels:

1. $62.2M for Level 1 assets (FY-2019 fees = $39.7M).
2. $26.4M for Level 2 assets (FY-2019 fees = $18.4M)
3. $433.0M for Level 3 and NAV assets (FY-2019 fees = $140.5M)

Again, the numbers speak for themselves. The trustees are being rolled big time - everywhere.

A Four Year Delay in the NYCERS LRP Project - Time for DOI to Investigate

In its FY-2024 financial report (released in December 2024), NYCERS stated that there was a serious delay in completing its Legacy Replacement Project with only a vague reference to changes in the legacy systems. NYCERS promised a report with a new schedule at its February 2025 Board meeting. See the text below:

LRP began in June 2021, with a plan to complete the transformation over five years/five phases, with a target completion of September 2026.

Phase 1 was launched in January 2023, introducing foundational functionality that future phases will build upon.

In the midst of Phase 2 delivery, a range of legacy system changes surfaced that impacted the overall timeline. The Systems Integrator proposed to deliver a subset of Phase 2, called Phase 2.0, as this functionality did not rely on those legacy system changes, and we are currently on track for a January 2025 launch.

In parallel to a Phase 2.0 delivery, the Systems Integrator and NYCERS are working on a re-baseline plan for the remaining phases, which will be discussed during the February 2025 Board of Trustees Meeting.

February 2025 board of Trustee Meeting

Last week at that meeting, the staff reported to the trustees that the new tentative completion date for the LRP project would be at the end of 2030 rather than the original September 2026 date. That is over four years behind schedule for a five-year contract.

Since December, Accenture (the "systems integrator"), the firm developing the project, delivered a revised high-level plan for the completion of the remaining scope of the project with a target date as of the end of 2030. The NYCERS staff stated that it had reviewed this plan.

Going forward, Accenture will provide a detailed resource plan supporting the 2030 completion target date. This detailed plan is needed for NYCERS to be able to give final approval for the new plan. The NYCERS approval of this new plan is targeted for the spring of 2025.

After a two-minute presentation there were no questions from the trustees concerning this four-year delay. This is obscene.

Background

NYCERS started the LRP project in July 2015. It was the brain child of Liz Reyes, the IT director at the time. She now is the deputy executive director and is hoping to become the executive director in May when the incumbent retires.

NYCERS signed the LRP implementation contract with Accenture in April 2021. It had an approximate term of five years with a total cost of $85.1M.

Three years later in 2024, Accenture notified NYCERS that the September 2026 completion date was not achievable.

When does gross incompetence become criminal?

I am not aware of any evidence of corruption involving the LRP project.

However, NYCERS’s glaring incompetence and obvious inattention to the project’s risks raises red flags that should be investigated.

NYCERS has never produced a cost/benefit analysis for this project.

Gartner has been under contract to NYCERS since 2015 providing advice on the LRP project. What was that advice?

During 2019 and 2020, NYCERS paid Accenture approximately $12M to install a Salesforce application. This means that Accenture has had extensive experience with NYCERS’s operations. Why did it take Accenture three years to come up with a new completion date four years out from September 2026?

The Legacy Replacement Project on Life Support

Collapse of the Legacy Replacement Project - Update 1/14/2025

I just recently commmented on spending problems with the Legacy Replacement Project at NYCERS.

Days later I became aware of a statement in the NYCERS FY-2024 NYCERS financial report, pages 12-13. The report was released in late December 2024, roughly three weeks ago. The statement indicates serious problems with LRP project. Below is the quote.

Quote from FY-2024 NYCERS ACFR

LRP began in June 2021, with a plan to complete the transformation over five years/five phases, with a target completion of September 2026.

Phase 1 was launched in January 2023, introducing foundational functionality that future phases will build upon.

In the midst of Phase 2 delivery, a range of legacy system changes surfaced that impacted the overall timeline. The Systems Integrator proposed to deliver a subset of Phase 2, called Phase 2.0, as this functionality did not rely on those legacy system changes, and we are currently on track for a January 2025 launch.

In parallel to a Phase 2.0 delivery, the Systems Integrator and NYCERS are working on a re-baseline plan for the remaining phases, which will be discussed during the February 2025 Board of Trustees Meeting.

The quote opens with an inaccurate statement that the LRP project started in FY-2021. It started in FY-2016. The project is now in its tenth year, FY-2025. It is also not responsible to say that it will be completed by September 2026.

The real problem, however, is raised in the highlighted text in the quote. As stated in the previous year's ACFR, Phase 2 was projected to "launch" in September 2024. That target has now vanished.

NYCERS states that at some point during FY-2024 a "range of legacy system changes" surfaced which impacted the Phase 2 timeline. At that point NYCERS was in the midest of the ninth year of the project or the third year of the Accenture contract. NYCERS gives no specific details of what the "changes" are and how they impact the project. I suspect that the scale of the legacy systems are overwhelming the standard Penfax software application which NYCERS contracted to handle the legacy functions. This obstacle will either force a redesign of the project with an associated delay or a revelauation of the total project.

NYCERS states that it will discuss a new timeline at the Febuary 2025 Board of Trustees meeting. That should be an interesting meeting.

The new Phase 2.0 is stripped down application that does not support any of the functions of the legacy systems. This minimal application has a delivery date of January 2025. This date is four months after the Septemebr 2024 date for the original Phase 2.

It now appears that the excutive director will be retiring on May 1, 2025 after seven and half years at NYCERS.

This project is out of control.

NYCERS CAFR/ACFR Comments on the Legacy Replacement Project since 2016

In light of the chaos described above, please refer to the quotes below from NYCERS annual financial statements from 2016 to 2024. The quotes are updates on what is happening with Legacy Replacement Project. Obviously NYCERS never thinks that anyone will backcheck what they said the year before.

I will let the quotes speak for themselves.

2016

NYCERS has embarked on a multi-year project to modernize our business processes and related technology. The principal objective of this initiative is to replace our legacy data processing environment and establish a new Pension Administration System that will transform the way we do business and interact with our members, pensioners, and various stakeholders such as employers and other City agencies. The intended outcome is to provide streamlined services in a modern context using up-to-date technologies that are flexible and provide value in an ever-changing environment.

2017

NYCERS is on a journey of transformation through the accomplishment of key initiatives that will span the next 5 to 6 years. We have been preparing for our upcoming multi-year legacy system replacement project, including developing the Request for Proposals, data analysis and data cleansing.

2018

During fiscal year 2018, NYCERS continued along the journey of transformation through the accomplishment of several key initiatives designed to help us deliver a world-class customer experience and enhance our operations, while preparing for the replacement of our legacy systems.

2019

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

NYCERS issued a Request for Proposal (RFP) for the LRP on April 18, 2019. Proposals were received on July 15, 2019 and are currently under review.

2020

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

NYCERS issued a Request for Proposal (RFP) for the LRP on April 18, 2019 and expects to complete contract negotiations with the selected vendor by December 31, 2020.

2021

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

The LRP will be completed over five phases. Phase 1 began on June 22, 2021. It is anticipated each phase will take approximately one year to complete.

2022

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

The LRP began in June 2021 and is expected to be completed by June 2026 over five phases.

Phase 1 is scheduled to launch in January 2023.

2023

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

The LRP began in June 2021 and is expected to be completed by June 2026 over five phases. Phase 1 launched in January 2023. Phase 2 is currently scheduled to launch in September 2024.

2024

The Legacy Replacement Project (LRP) is a complex, multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system will transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

LRP began in June 2021, with a plan to complete the transformation over five years/five phases, with a target completion of September 2026. >p> Phase 1 was launched in January 2023, introducing foundational functionality that future phases will build upon.

In the midst of Phase 2 delivery, a range of legacy system changes surfaced that impacted the overall timeline. The Systems Integrator proposed to deliver a subset of Phase 2, called Phase 2.0, as this functionality did not rely on those legacy system changes, and we are currently on track for a January 2025 launch.

In parallel to a Phase 2.0 delivery, the Systems Integrator and NYCERS are working on a re-baseline plan for the remaining phases, which will be discussed during the February 2025 Board of Trustees Meeting.

How the Rich Take from the Poor: Investment Costs from 2000 to 2024

Listed in the chart below are the investment expenses for asset classes in the NYCERS portfolio, in particular , U.S. equities and private equity funds.

The chart clearly lays out systematic lunacy in NYCERS investment strategy as highlighted by the differences in these two classes. One, U.S. equities is effective and inexpensive and the other, private equity, is ineffective and grossly expensive.

Private equity and other limited partnerships have exploded in the last 25 years. NYCERS is not alone in this insanity. Many other pension funds are infected with this disease including the other four city pension funds.

We all know the story of "The Emperor's New Clothes". This emperor is not only vain but deaf, dumb, and blind. On a more fundamental basis this is how the rich legally take from the poor.

Overview

As of June 30, 2024, NYCERS had a closing balance of $87.93 billion in assets up from $82.43 in FY-2023.

NYCERS paid $572.03 million in investment expenses in FY-2024 up from $489.90 million in FY-2023.

The total expenses for the five city pension funds were $1.95 billion for FY-2024.

The City is always pressed for revenue and yet it allows this bleeding to continue.

U.S. Stocks

Of the $87.93B amount, NYCERS reported $$22.10B in U.S. stocks for which NYCERS paid $16.76 million in management fees.

Of the $22.10B amount, $15.26 billion was in two index funds for which NYCERS paid only $307,483 in management fees.

The value of this asset class is based on the closing values of U.S. stock markets as of June 30, 2024. The open markets make this asset class totally liquid.

NYCERS reported that this class had a rate of return for the year of 22.98% for FY-2024. This figure is based on the closing market stock prices as of June 30th of the previous year and the current year, dividends paid during the year, and the purchase and sale of stocks during the year. Fees are netted out starting in 2015.

Private Equity

Of the $87.93B amount, NYCERS reported $9.20 billion in private equity funds for which NYCERS paid $229.09 million in fees and organization costs.
NYCERS provides no description of what organization costs are. Of the $229.09 million amount organization costs were $64.74 million.

The value of this asset class is based on a best guess (NAV) by the 81 general partners running all the private equity funds. This is because there are no public markets for private equity funds. You have to take this number with a big grain of salt. Some general partners manage more than one fund.

NYCERS reports that this class had a rate of return for the year of 5.09% for FY-2024.

NYCERS does not document how this number is arrived at. Actually, there is no rate of return for private equity funds as a class, only for individual funds and only at the point when the fund closes and makes its last distribution. Each fund should be reported out when it closes. Of course, this would create tremendous PR problems. While some funds may have respectable returns in spite of high fees, others would be horrific disasters.

I suspect, however, that the black box contracts that NYCERS signs with the general partners prohibit NYCERS from publishing the final results.

Also, because there are no public markets for private equity funds, this class is not liquid. NYCERS could possibly sell its position in a particular fund but only at a steep discount and only if there was a buyer.

Investment Expense Tables 2020-2024

Investment Costs for Different Classes

CLass/Year (in millions)	2024	2023	2022	2021	2020	*	2015	2010	2005	2000
Fixed Income	$26.63	$24.99	$26.95	$27.65	$23.92	*	$17.81	$14.80	$10.35	$10.22
US Equities	$16.75	$13.67	$16.88	$14.71	$8.85	*	$17.06	$14.68	$6.47	$8.74
Private Equity	$163.36	169.77	$77.61	$67.94	$66.09	*	$40.35	$58.77	$9.70	$2.83
Private Eq. Org. Costs	$64.73	$34.69	$19.82	$19.16	$21.73	*	$13.03	$28.84	*	*
Alternative Opport/Global FI	$34.17	31.22	$21.65	$21.70	$14.97	*	$12.65	*	*	*
Alternative Opport/Global FI Org. Costs	$2.40	3.88	$1.67	$1.76	$0.25	*	$4.51	$0.0	*	*
Private Real Estate	89.93	$75.18	$46.68	$43.20	$31.96	*	$17.78	$17.32	$1.66*	*
Real Estate/Infrastructure Org. Costs	$38.41	23.64	$20.21	$10.68	$8.17	*	$5.11	$3.15	*	*
Infrasructure	$39.98	$36.64	$20.80	$15.72	$13.32	*	*	*	*	*
International Equities	$45.44	41.11	$44.69	$41.38	32.22	*	$31.73	$28.15	$15.84	$14.82
Hedge Funds	*	*	*	*	*	*	$39.79	*	*	*
Mutual Fund - Domestic Equity	*	*	*	*	*	*	-$0.01*	$0.65*	*	*
Mutual Fund - Mortgages	$0.27	$0.27	$0.29	$0.32	$0.30	*	$1.62	$0.90	*	*
Teasury Infaltion Protect Secs.	*	*	*	*	*	*	$1.34	$0.88	$0.05	*
Mutual Fund - Bank Loan	$0.0	$0.0	$0.01	$0.71	$1.36	*	$3.34	*	*	*
Consultants	$2.50	$2.55	$2.45	$2.72	$2.82	*	$3.51	$4.44	$1.45	$0.71
Legal Fees	$0.75	$1.12	$0.70	$0.66	$0.67	*	$0.10	*	*	*
Foreign Taxes	$40.57	$25.59	$39.70	$37.90	$24.07	*	$15.48	$1.12	*	*
Subsidy to Comptroller	$3.92	$3.64	$3.94	$4.26	$4.02	*	2.11	*	*	*
Miscellaneous	$2.43	$1.89	$5.15	$2.81	$2.19	*	$4.51	$1.57	$0.60	$0.12
Total Expenses	$572.3	$489.90	$349.22	$313.23	$245.67	*	$231.76	$175.26	$46.11	$37.43
Total Assets (in billions)	$87.93	$82.43	$78.53	$87.08	$70.25	*	$55.03	$35.38	$35.53	$42.82

An Agency Adrift

During the 12/12/2024 NYCERS Board of Trustees meeting, the executive director, Melannie Whinnery, presented the FY-2024 budget reconciliation report. The key item in the report was that NYCERS had only spent $130.3M, which was $38.1M less than the budgeted amount of $168.4M.

The cause of the shortfall was reported to be mainly due to:

1. $27.2 M delayed payments for the Legacy Replacement Project (LRP, an IT upgrade project) because of the delayed implementation of the project and
2. $9.0 M unspent payroll allocation because of difficulty in hiring new authorized personnel.

The LRP shortfall

In the FY-2024 budget, the LRP project was budgeted at $61.03M for consulting services. I guess we can assume that, in spite of the shortfall and delays, NYCERS did pay $33.83M ($61.03M-$27.20M) for consulting on the LRP project in FY-2024.

Listed below are the official NYCERS budget and ACFR non-payroll costs for the previous eight years:

Non-Payroll Shortfalls

Year	Budgeted	Actual	Underspent
2024	$98.0M	$69.8M	$28.2M
2023	$90.4M	$47.8M	$42.6M
2022	$84.5M	$52.7M	$31.8M
2021	$50.2M	$38.7M	$11.5M
2020	$45.9M	$31.9M	$14.0M
2019	$43.5M	$38.4M	$5.1M
2018	$21.8M	$19.2M	$2.6M
2017	$20.9M	$20.2M	$0.7M

Since FY-2020, as seen in the table above , NYCERS has been significantly underspent the budgeted amounts for its non-payroll expenses with the LRP project being the big-ticket item.

The LRP project was proposed in the spring of 2015 and was originally to start in FY-2016. Miscellaneous components of the project finally did get started in FY-2018. An RFP for the LRP was issued in December 2017. It was, however, withdrawn six months later in June 2018.

The current executive director was hired in the fall of 2017

In FY-2021 the LRP contract was finally awarded to Accenture for $85M with a five-year term ending in June 2026. As reported at the December Board meeting, a stripped-down version of Phase 2 is supposed to be in place by the first quarter of 2025.

Phase 1 appears to have been in place by the spring of 2023. It basically entailed the selection of an off-the-shelf commercial pension administration software package, PENFAX. The annual license charges started in FY-2022 and are currently budgeted at $4.4M in FY-2025. This is just for the licenses and not the customized application. The package will need extensive customization which I suspect will be the core work of Phase 2 through Phase 5.

This project is way behind schedule and will be way over budget, assuming it is ever implemented. I cannot overstate the enormous costs that are being incurred by this project. NYCERS never lets on that this project is its tenth year of dvelopment and that it was origianlly a five year project.

LRP Costs

For the seven years since FY-2018, the costs for

1. software licenses have increased from $2.2M to $10.8M with a total cost for the seven years of $39.9M, and
2. computer consulting has increased from $3.0M to $40.4M with a total cost for the seven years of $104.4M. Yes, over $100 million.

These significant costs are despite the shortfall in spending.

You would think that there must be members of NYCERS, NYC workers belonging to DC-37, who could do this work more effectively and at less cost.

Note: DC-37 is a NYCERS trustee.

There are eleven consulting companies who have been paid over $2.0M in the last seven years:

Consultants Paid over $2M

1	Accenture	$41.0M
2	Gartner	$12.1M
3	InfoPeople	$8.6M
4	Universal Technologies	$7.5M
5	Rangam Consultants	$5.4M
6	Spruce Technology	$4.2M
7	Blue Hill Data Services	$4.2M
8	Experis US Inc. ---	$2.8M
9	Linea Solutions	$2.5M
11	Computer Management Resources	$2.5M
19	ZebraEdge Inc.	$2.2M

There are another twelve companies who have been paid over $1.0M in the last seven years. That is at least $12M plus.

There are another eight companies who have been paid over $500,000 in the last seven years. That is at least $4M plus.

We are not talking about DOD here. This is just a large municipal pension system, one of five in NYC.

The Staffing Shortfall and the Option Letter Delay

In the spring of 2023, as part of the NYCERS FY-2024 budget presentation, the executive director outlined serious production problems at the agency, especially the delays in producing option letters for new retirees (9/3/2923). Because of these problems the executive director asked for thirty two new full-time employees. The trustees approved only an increase of sixteen employees, raising the agency’s total of full-time employees to 501.

In the spring of 2024, the executive director, in a remote video meeting with the Municipal Labor Committee, projected that the option letter delay would be reduced to six months by the end of July 2024. She did, however, gave herself some leeway in that the agency was having trouble hiring new employees. July came and went without hitting the six-month mark.

As of the December 12, 2024, NYCERS Board meeting, NYCERS staff reported that the option letter delay was at nine months ( November 2024) down from 13 months in the fall of 2023. The new six-month target date was now moved to the first quarter of 2025. It was noted that the number of retirement applications had dropped in 2024, which was a help with decreasing the delay with producing the option letters.

At the same Board meeting the staff attributed the delay in solving this problem to the agency’s failure to hire new employees.

In FY-2021 and FY-2022 NYCERS had no problem hiring forty-five new employees.

Listed below are the official NYCERS budget and ACFR payroll costs for the previous eight years:

Payroll and Fringe Shortfalls

Year	Budgeted	Actual	Underspent
2024	$67.9M	$60.2M	$7.7M
2023	$56.0M	$57.7M	-$1.7M
2022	$51.3M	$52.3M	-$1.0M
2021	$48.1M	$48.7M	-$0.6M
2020	$45.9M	$45.7M	$0.2M
2019	$43.9M	$43.7M	$0.2M
2018	$40.9M	$40.4M	$0.5M
2017	$39.7M	$39.5M	$0.2M

History of NYCERS Administrative Expenses: 2000 - 2024

The following is a of NYCERS administrative expenses from 2000. The information comes from NYCERS Comprehensive Annual Financial Report.

As a point of reference NYCERS had an annual budget of $8.8M in FY-1996, the last year NYCERS was part of the city budget.

NYCERS Admin Expenses

Fiscal Year	Personnel Expenses	Contracts & Consultants	Phone, Mail, & Printing	Rentals	Software, Hardware, Support, Supplies, & Maintenance	Depreciation & Credits	Total
FY-2024	$60,156,204	$42,434,468	$1,236,809	$9,257,263	$17,189,819	$0	$130,274,563
FY-2023	$57,736,915	$19,910,959	$1,037,015	$9,282,322	$17,825,949	$0	$105,793,160
FY-2022	$52,303,943	$27,418,528	$1,029,424	$9,329,701	$14,906,397	$0	$104,987,993
FY-2021	$48,693,043	$14,058,975	$1,290,546	$6,617,040	$16,753,334	$0	$87,412,938
FY-2020	$45,736,806	$11,337,750	$1,173,896	$6,870,614	$12,548,240	$0	$77,667,306
FY-2019	$43,717,712	$15,884,418	$1,114,263	$6,637,059	$14,719,873	$0	$82,073,325
FY-2018	$40,444,145	$4,310,427	$1,072,077	$6,348,888	$7,513,233	$0	$59,688,770
FY-2017	$39,505,894	$3,829,758	$1,561,282	$5,909,352	$8,864,342	$0	$59,670,628
FY-2016	$37,950,289	$4,687,929	$1,360,397	$5,453,383	$7,230,989	$0	$56,682,988
FY-2015	$37,368,409	$3,652,154	$1,336,002	$5,037,893	$7,239,560	$0	$54,635,018
FY-2014	$33,571,938	$3,773,082	$1,269,387	$4,863,720	$6,952,691	$0	$50,430,818
FY-2013	$33,064,087	$3,102,385	$1,078,411	$4,674,442	$6,797,095	$0	$48,666,420
FY-2012	$32,623,085	$3,088,256	$1,096,186	$4,796,584	$9,780,637	$0	$51,384,748
FY-2011	$31,748,443	$4,108,186	$995,415	$4,741,621	$4,780,811	$0	$46,374,476
FY-2010	$31,527,659	$5,434,495	$1,041,471	$4,278,903	$6,678,071	$715,000	$49,675,599
FY-2009	$30,187,604	$4,043,775	$914,311	$4,047,949	$8,198,354	$1,430,000	$48,821,993
FY-2008	$28,344,427	$6,401,745	$997,316	$4,138,211	$5,687,716	$1,430,000	$46,999,415
FY-2007	$27,123,219	$2,677,793	$1,055,233	$5,203,902	$4,205,095	$1,430,000	$41,695,242
FY-2006	$24,992,543	$3,124,688	$1,497,895	$4,797,895	$4,472,246	$1,430,132	$40,291,469
FY-2005	$24,474,710	$3,039,970	$827,277	$4,454,258	$3,118,356	$1,430,296	$37,306,867
FY-2004	$22,631,504	$3,124,800	$845,391	$4,192,543	$3,376,187	$1,430,000	$35,559,081
FY-2003						$1,430,000	$34,101,000
FY-2002						$1,430,000	$31,548,000
FY-2001						$1,430,000	$31,584,000
FY-2000	$15,990,745	$1,587,290	$718,686	$1,531,536	$2,691,719	$725,000	$23,244,976