Tuesday, September 18, 2012

Delays in Loan Processing at NYCERS

NYCERS recently posted the following notice on its web site:

September 4, 2012

In order to better serve our members and retirees, NYCERS is upgrading its technology system. As a result, some transactions may take longer to process. For example, loan applications will take at least 20 days to process as we implement these technology improvements. Thank you for your patience and cooperation.

Loan processing is the most high profile service at NYCERS. Over 50,000 members a year apply to NYCERS for a loan backed by the members' pension contributions. For that reason it is the most automated system at NYCERS. The traditional turn around time for a loan is one week. Applications received between any given Thursday and the following Wednesday are vouchered the next Thursday and the loan checks are mailed out on Friday. A Wednesday application is actually mailed out two days after it is filed.

Almost all loans have a processing fee. It currently is $40. The members are paying for this service and are entitled to quick and accurate service. When I left NYCERS in 2005, the fee was $15.

NYCERS has allegedly "upgraded its technology system". Instead of the one week turn around, it will now take three weeks. I suspect there is a very serious problem with the loan processing system. NYCERS does not give an understandable explanation or a projected solution to this problem.

The loan system I left in place in 2005 was working very well and was less expensive to run than this new "upgraded" system. It would appear that new technology should make things better. NYCERS, however, is quite comfortable claiming the opposite. The fact that NYCERS does not see this contradiction, is troubling.

I suspect we are not being told the real reason for the delay. By the way, what are the other transactions being delayed?

This is a service that the members are paying for out of their paychecks. Is NYCERS giving the members a discount on the fee because of poor service? I don't think so.

Why did the trustees and the executive director allow this problem to occur?

Tuesday, September 11, 2012

Nagaswami and the Hedge Funds

2010 - Bloomberg appoints Nagaswami as his investment person on the city pension boards.

2011 - NYCERS starts investing in hedge funds

2012 - Nagaswami leaves the city pension funds and takes a job with a hedge fund.

Tuesday, September 4, 2012

Tier 6 - Disability Picture for NYC Police, Fire, Corrections, Sanitation, and Detective Investigators Members


As of July 1, 2009 all new NYC police officers and fire fighters were covered by the Tier-3 pension benefit structure.

As of April 1, 2012 all new NYC police officers, fire fighters, correction officers, sanitation workers, and DA detective investigators are covered by the new Tier-6 pension benefit structure.

Tier 6 is an effort at pension benefit reform within New York State. It definitely cuts benefits. It is very expansive but I want to focus on one particular area, disability benefits for these Tier-6 workers.

With respect to these Tier 6 members, the new disability benefits are the old Tier 3 benefits put in place back in 1976, 37 years ago. The one difference is that these benefits are now based on compensation base equal to a five year average earnings as opposed to the old three year average.

The relevant sections of law in Tier 6/Tier 3 with respect to disability benefits are Sections 506 (Ordinary Disability) and 507 (Accident Disability) of the N.Y.S. Retirement &Social Security Law (RSSL).

As of 2009, only the NY Police Pension Fund (NYPPF) and the FDNY Pension Fund (FDNYPF) were involved with the Tier 3 throwback.

As of 2012, Tier 6/Tier 3 involves three pension systems, NYPPF, FDNYPF, and NYCERS. These three systems will have to resurrect the old Tier-3 procedures from the 1976 to 1983 time period. Of the three systems, only NYCERS administered Tier-3 benefits during that time. In 1976, the benefit structure for both NYPPF and FDNYPF remained in Tier 2.

In 1983, Tier 4 superseded Tier 3 state wide. One of the big reasons for the change over to Tier 4 was the administrative problems inherent in Tier 3, especially the Social Security coordination and its tie-in to disability determinations.

These lower Tier 6 disability benefit levels will reduce the number of members retiring for disability. The VSF benefit, for police, fire, and corrections, is only available to service retirees. This benefit along with the long term earnings limitations will push many members to continue working until their 22nd year even when they may qualify for a disability benefit. Members who are profoundly disabled, however, will have no choice but apply for whatever disability benefit they qualify for.

The FDNY will have a special management problem supervising two groups of employees, one with an accident disability benefit = 45% (new fire fighters) and another with a line of duty disability benefit = 75% for all EMS workers, even Tier 6 ones. This makes one think that there will definitely be future changes to this part of Tier 6.

Ordinary Disability Benefits (S.506)

The new Tier 6 ordinary disability benefit is equal to

  1. The greater of 33&1/3% of the five year average FAS or 2% times years of service up to 30 years
  2. Minus 50% of the primary SS disability benefit or at age 62, 50% of the primary SS retirement benefit (if ineligible for SS disability)
  3. Minus 100% of any Workers Compensation (WC) payable
  4. Plus full immediate escalation.

To be eligible the member must in active service and have at least 5 years of credited service. Continuous employment in active public service immediately prior to the date of membership in the appropriate retirement system shall also count towards the 5 year requirement. There is no age requirement for the ordinary disability benefit.

The member must be determined to by disabled by the Social Security Administration. If you are older than 65 or do not have a enough quarters to be eligible for SS disability, then the approppriate retirement system Medical Board will make the disability determination. The cause of the disability is not pertinent to granting the benefit.

Retirees receiving ordinary disability benefits are subject to post retirement income limitations. These limitations are the same as apply to the accident disability benefit. See below.

Note: Workers Compensation

NYC police officers, fire fighters, and sanitation workers are not covered by Workers Compensation. Therefore, there is no WC offset for their disability benefits.

Correction officers and DA detective investigations are, however, covered by the city's WC structure. This means there will be WC offsets to their disability benefits, if the member receives any WC payments.

It may be prudent for these members not to claim WC payments since the NYCERS benefit might be reduced to zero by the offset. This would put their city health insurance as retirees at risk. However the WC payments might be greater than the NYCERS benefit with or without the SS offset. The member needs to do some arithmetic to properly balance their benefit structure. I'm sure the relevant unions will provide advice.

A WC offset for an ordinary disability benefit is unusual and raises the issue of whether this benefit is exempt from federal income tax in the same way that accident disability benefits are. The NYC Law Department will have to resolve this issue.

Accident Disability Benefits (S.507)

The Tier-6 benefit is equal to

  1. 50% of the five year average FAS
  2. Minus 50% of the primary SS disability benefit or at age 62, 50% of the primary SS retirement benefit (if ineligible for SS disability)
  3. Minus 100% of any Workers Compensation payable.
  4. Plus immediate full escalation. See the escalation section below.

To be eligible the member must in active service. There is no two year filing limitation that existed in Tier-2. There is no service or age requirement for the accident disability benefit. It appears to me that police officers and fire fighters with 22 or more years of service are not eligible while NYCERS members are free of that limitation. This issue will not arise for many years and probably will be changed sometime in the future.

The member must be determined to by disabled either by the Social Security Administration or the appropriate pension Medical Board. In either case, the Medical Board must make a recommendation on whether the associated incident on the job caused the disability and the incident was an accident as per retirement system's legal definition of an accident. These causation and accident determinations are the same as in Tier-2.

The appropriate Board of Trustees makes the final determination on causation and accident. The final disability decision, however, rests with the Social Security Administration or the retirement system's Medical Board.

Members must waive any right to any statutory presumption (i.e. heart bill or lung bill) relating to the cause of the disability or eligibility for disability benefits. This does not apply to World Trade Center presumptions.

Retirees receiving accident disability benefits are subject to post retirement income limitations. See below.

Limitations on Income after Disability Retirement (S.507.d)

There are significant long term income limitations for disability retirees, both for accident and ordinary disability. I have included the exact wording from the statute (S.507.d) below because of the harshness of the restriction. If the retiree loses his/her SS disability benefit or engages in employment or business activity that would make him/her ineligible for SS disability benefits, then his/her retirement system disability benefits cease. This is not just a suspension. The only reprieve is being placed on a preferred eligible list.

If a member shall cease to be eligible for primary social security benefits before attaining age sixty-five, or, if receipt of social security benefits is not a condition for disability benefits hereunder, shall engage in such employment or business activity as would render such member ineligible for social security disability benefits (had he or she otherwise been eligible), benefits hereunder shall cease.

Provided, however, if such member is otherwise eligible, the state civil service department or appropriate municipal commission shall place the name of such person, as a preferred eligible, on the appropriate eligible lists prepared by it for positions for which such person is stated to be qualified in a salary grade not exceeding that from which such person retired.

In such event, disability benefits shall be continued for such member until such member first shall be offered a position in public service at such salary grade.

Escalation (S.510)

Escalation is designed to provide some protection from the negative effects of inflation over time. A Tier-6 member who retires for either disability benefit is eligible every April 1 for a percentage increase in his/her benefit based on the lesser of 3% or the consumer price index (all items- US city averages as per US Bureau of Labor Statistics) as of the previous December 31.

In the event of a decrease in the CPI, the benefit is decreased by the lesser of 3% or the CPI. The benefit will not decrease below the original benefit.

The CPI changes are cumulative and are brought forward each year. So in effect, there are two running escalation indexes, the all 3% index and the all CPI index.

Escalation becomes payable: 1) For eligible service or vested benefits on April 1 following the 25th anniversary date. The first year is prorated on monthly basis. 2) For accident and ordinary disability and death benefits on April 1st following the date the benefits start. Again the first year is prorated.

Social Security Offset (S.511)

Calculating this offset can get very complicated. But roughly speaking the amount is computed at the time that the member retires from the appropriate retirement system and not at the member’s 62nd birthdate. It does not include any private sector income in computing the Social Security benefit. Only wages from employers who participate in NYS public pension plans are used. All other wages are set to zero. The offset will not include any increases to the Social Security benefit which occur after the member's retirement date. The complexity of this offset is one of the prime reasons that New York State moved to Tier 4 (the SS offset was dropped completely along with automatic escalation) in 1983.