More Haze Over Long Island City

In September I wrote about the adoption of the NYCERS budget for FY-2014 at the March 14, 2013 NYCERS Board of Trustees meeting. I pointed out the scant reference to the issues surrounding the disaster recovery site at Long Island City (L.I.C.) in the executive director's written presentation on the budget. In a terse sentence she implied that the L.I.C. disaster recovery project was now functioning after an seven year delay.

I was curious whether any of the trustees had any questions at the meeting about this fiasco. So I made a FOIL request of the public minutes of the board meeting where the $52.2M budget was approved. This is the relevant exert form the minutes of the March 14, 2013 NYCERS Board of Trustees regular meeting:

CHAIRPERSON WOLPERT:
All in favor?
(A chorus of "Ayes.")
Any opposed?
Motion carries.
Item 2 on the agenda is a report by the budget committee, of which I am chair, so I will report on that.

I think NYCERS really did an incredible job presenting their budget to us. There was beautiful and substantively informative PowerPoint presentation. All of the really knowledgeable staff was there to answer any questions we had. For me, I think everything was in order.

I don't know if anybody on the budget committee or anybody else has any questions?

MS. O'CONNELL (DC-37):
A comment to echo your comments, Carolyn. I think Diane and staff did an excellent job of keeping the focus on member services, and also moving the institution forward in terms of technology and making progress in that regard. So I thank the executive director and staff for their efforts.

CHAIRPERSON WOLPERT:
With that, a motion to approve the budget?

MS. D"ALESSANDRO(executive director):
...Then we move into the actual proposed budget for fiscal 2014 which is 2B(i) in your packet, and essentially it is the administrative budget for fiscal 2014 with $26,620,635 for PS expenses; $17,951,822 for other than personal expenses; qnd a total budget of $44,575,457 for fiscal 2014. (there is an additional $7.6M in fringe costs)

CHAIRPERSON WOLPERT:
Any questions on this resolution?
Is there a motion to approve?

MS. O'CONNELL:
Motion.

MS. STRYKER(Local 237, Teamsters):
Second.

CHAIRPERSON WOLPERT:
All in favor?
(A chorus of "Ayes.")
Any opposed?
Motion carries.

As you can see from the quoted text above, that there was no substantive discussion about this major expenditure. The text is devoid of any concrete information other than the fact that the regular NYCERS admin budget for FY-2014 will be $44.5M. (actually $52.2M)

One thing that caught my attention was the comment about the "beautiful and substantively informative PowerPoint presentation". I thought that it would be wonderful to read the presentation given to the budget committee. So I made a follow up FOIL request for it. That was on October 18, 2013. I made a second request on November 11, 2013 and on December 3, 2013 I received the following response from NYCERS.

Please be advised that your request under the Freedom of Information Law for NYCERS PowerPoint presentation outlining the FY-2014 administrative budget given to the Trustees budget committee is being denied.

The information you are seeking is considered inter-agency or intra-agency materials. Said materials were not presented to the Board of Trustees or listed as an Agenda Item at any NYCERS Regular/Investment meeting.

If you wish to appeal this denial, please contact Diane D’Alessandro, (Executive Director) of NYCERS.

It is clear to me that this reason for denial is evasive and incorrect. Listed below is the exact wording from the state web site about this specific reason for denying a FOIL request:

(g) are inter-agency or intra-agency communications, except to the extent that such materials consist of:
i. statistical or factual tabulations or data;
ii. instructions to staff that affect the public;
iii. final agency policy or determinations; or
iv. external audits, including but not limited to audits performed by the comptroller and the federal government;

As per the meeting minutes, the Chairperson points to the PowerPoint presentation as the basis of the budget committee's recommendation for approval of the proposed budget.I think it is safe to say the document was the basis of a final agency policy or determination, the adoption of the agency's $52.2M FY-2014 administrative budget.

In addition, I suspect that the Budget Committee falls under the N.Y.S. Open Meetings Law. That means material provided to the committee is public record. I don't think the committee had any reason to conduct its meeting in executive session.

Needless to say, while I will never see this PowerPoint presentation, I am sure that the N.Y.S. Department of Financial Services auditors will demand to see this presentation. They should also demand a physical inspection of the L.I.C. site and observe actual full disaster drill, not some empty "trust me" claim.

You would think that NYCERS management would have been anxious to provide the public a clear picture of the status of the Long Island City disaster recovery site. Now, because of this failure to disclose, it seems reasonable to conclude that the PowerPoint presentation is inaccurate and a poor basis for adopting the FY-2014 budget. Besides the mess at Long Island City what other disasters are the NYCERS management hiding.

The IRS, Section 415(b) Benefit Limits and the NYCERS Excess Benefits Plan

As of October 1, 1987 the IRS imposed dollar limits (IRC S.415(b)) on pension benefits paid by tax exempt pension plans which included NYCERS.

Benefits in place at the time were grandfathered and were not subject to the limits. New NYCERS benefits legislated after 1987, however, were subject to the IRS limits. Failure to comply could have cost NYCERS its tax exempt status.

The limits did not become a real issue until the mid 1990's when members started to retire under post 1987 retirement plans (i.e. Chapter 96 Physically Taxing Age 50/25 Plan). Over time more and more members began having their benefits reduced.

In order to provide relief to governmental pension plans the IRS allows them to establish excess benefit plans (IRC S.415(m)) to pay out the difference between the full state statutory benefit and the reduced IRS benefit.

On October 19, 2004 the NYS legislature enacted Chapter 623 of the Laws of 2004 which created excess benefit plans (EBP) for the five New York City pension funds. This chapter also made the EBP's retroactive to July 1, 2000. See text below. As of that date, for all such reduced benefits, NYCERS was authorized to pay the difference via the EBP.

§ 7. This act shall take effect immediately and shall be deemed to have been in full force and effect on and after July 1, 2000, provided, however, that this act shall remain in effect only as long as the bene- fits provided therein are authorized by the Internal Revenue Code; provided that the state comptroller of the city of New York shall notify the legislative bill drafting commission upon the occurrence of the enactment of the legislation provided for in this act in order that the commission may maintain an accurate and timely effective data base of the official text of the laws of the state of New York in furtherance of effecting the provisions of section 44 of the legislative law and section 70-b of the public officers law.

This statute was enacted only five months before the trustees terminated me as executive director. So I am not sure how NYCERS put this benefit into place.

I suspect, however, the statute was not correctly implemented. At the very least. the reference to Chapter 623 in the old Tier 4 NYCERS SPD Update had a significant error in it.

It stated that the statute only applies to members who retire after July 1, 2000. You can see in statute below that there is no restriction based on retirement date, only based whether the retirement benefit has been reduced by IRC Section 415(b). See paragraph 4 of Section 13-196 below. The old Tier 4 SPD does not appear to be available on the NYCERS website anymore. There now appears to be only a Tier 4 62/5 Plan SPD which makes no mention of the excess benefit plan.

It is clear that in 2005 all retirees who had their benefits reduced because of IRC 415(b) limits should have received notification from NYCERS that they would be receiving benefits payable from the EBP and that the payment would be retroactive to July 1, 2000 if applicable. This is not large group but I suspect that notices were not sent out.

While it would have been very easy to just forget screening for the 415(b) limits going forward, it is not the way that Chapter 623 directed NYCERS to handle the EBP. It is clear that NYCERS needs to maintain separate accounting for benefits paid from the EBP as required by paragraph 3 of Section 13-196. It also appears that NYCERS is not following the law in this case since there is no reference the EBP in the FY-2012 NYCERS CAFR.

This is the NYCERS statute setting up the EBP.

New York City Administrative Code(NEW)
§ 13-196 Excess benefit plan.
1.
As used in this section, the following words and phrases shall have the following meanings, unless a different meaning is plainly required by the context:
(a) "Retirement benefits" shall mean benefits payable to a beneficiary by the retirement system or a variable supplements fund established pursuant to this chapter which are subject to the limitations imposed by section 415(b) of the Internal Revenue Code.
(b) "Beneficiary" shall mean a person who is receiving retirement benefits from the retirement system.
(c) "Excess benefit plan" shall mean the excess benefit plan established by this section for the sole purpose of paying benefits as permitted under section 415(m) of the Internal Revenue Code.
(d) "Eligible participant" shall mean a beneficiary who is entitled to replacement benefits from the excess benefit plan for a plan year in accordance with subdivisions four and five of this section.
(e) "Replacement benefits" shall mean the benefits payable by the excess benefit plan to an eligible participant as determined pursuant to subdivision five of this section.
(f) "Internal Revenue Code" shall mean the Federal Internal Revenue Code of 1986, as amended.
(g) "Plan year" shall mean the limitation year of the retirement system as provided in section six hundred twenty of the retirement and social security law.
2.
There is hereby established an excess benefit plan, the sole purpose of which shall be to provide replacement benefits, as permitted by section 415(m) of the Internal Revenue Code, to beneficiaries whose annual retirement benefits have been reduced because such benefits exceed the limitations imposed by section 415(b) of the Internal Revenue Code. The excess benefit plan shall be administered by the board of trustees of the retirement system.
3.
There is hereby established a fund to be known as the excess benefit fund which shall be maintained for the sole purpose of providing replacement benefits to eligible participants in the excess benefit plan established by this section, as permitted under section 415(m) of the Internal Revenue Code. Such fund shall consist of such employer contributions as shall be made thereto pursuant to subdivision six of this section. Such contributions to the excess benefit fund shall be held separate and apart from the assets held by the other funds of the retirement system, provided, however, that the assets of the excess benefit fund may be invested with the other retirement system assets, but such excess benefit fund assets shall be accounted for separately from the other retirement system assets.
4.
All beneficiaries of the retirement system whose retirement benefits for a plan year are being reduced because of section 415(b) of the Internal Revenue Code shall be eligible participants in the excess benefit plan for that plan year. Participation in the excess benefit plan shall be determined for each plan year. No beneficiary of the retirement system shall be an eligible participant in the excess benefit plan for any plan year for which his or her retirement benefits are not reduced because of section 415(b) of the Internal Revenue Code.
5.
(a) For each plan year in which a beneficiary is an eligible participant in the excess benefit plan, such eligible participant shall receive replacement benefits from the excess benefit plan equal to the difference between the full amount of the retirement benefits otherwise payable to the eligible participant for that plan year prior to any reduction because of section 415(b) of the Internal Revenue Code, and the retirement benefits payable to the eligible participant for that plan year as reduced because of section 415(b) of the Internal Revenue Code. No replacement benefits for any plan year shall be paid pursuant to this subdivision to any beneficiary who is not receiving retirement benefits from the retirement system for that plan year.
(b) Replacement benefits pursuant to this section shall be paid at the same time and in the same manner as the retirement benefits which are being replaced. At no time shall an eligible participant be permitted directly or indirectly to defer compensation under the excess benefit plan.
6.
(a) The required employer contributions to the excess benefit fund for each plan year shall be an amount, as determined by the actuary, which is necessary to pay the total amount of replacement benefits that are payable pursuant to this section to eligible participants for that plan year.
(b) Such required employer contributions shall be paid into the excess benefit fund from an allocation of the employer contribution amounts paid by the city and other public employers pursuant to sections 13-127, 13-130 and 13-131 of this chapter and other applicable provisions of law. Such allocation of employer contribution amounts shall be paid into the excess benefit fund at such times and in such amounts as determined by the actuary.
(c) The benefit liabilities of the excess benefit plan shall be funded on a plan year to plan year basis, provided, however, that any employer contributions to the excess benefit fund, including any investment earnings on such contributions, which are not used to pay replacement benefits for the current plan year shall be used to pay replacement benefits for future plan years.
7.
The right of an eligible participant to receive replacement benefits pursuant to this section, and the replacement benefits received pursuant to this section, shall be exempt from any state or municipal tax, and shall not be subject to execution, garnishment, attachment or any other process whatsoever, and shall be unassignable, except as otherwise specifically provided for benefits payable by the retirement system.
8.
Nothing contained in this section shall be construed to mean or imply that variable supplements payments from a variable supplements fund established pursuant to this chapter constitute pension or retirement allowance payments, or that any such variable supplements fund constitutes a pension or retirement system or fund.
9.
Nothing contained in this section shall be construed as affecting in any way the eligibility of any person for variable supplements pursuant to applicable provisions of this chapter.

de Blasio, Taxes, Pension Investments, and Universal Pre-K

In the first budget that Mayor de Blasio will have to submit, FY-2015, he will have to include an amount of $541.0M that represents the repayment of $472.5M in pension investment fees incurred in FY-2013 along with two years of 7% interest charges, $68.5M. Actually it will be little less because the public authorities will have to pick up $82.5M of the $472.5M cost.

In addition the FY-2015 pension costs will include $2.2B in missed investment earnings that the pension trustees failed to capture.

At the same time in order to fund universal pre-K Mayor de Blasio is trying to get Albany to raise the city income tax rate from 3.87% to 4.41% for income over $500,000.

Maybe it's time to clean house before traveling to Albany.

What the Comptroller Won't Tell You

The chart below is a report card for the investment performance of the NYCERS trustees over the last 14 years. The Comptroller has never presented this type of report. The trustees have never demanded this type of analysis. It is "crystal" clear why neither party does.

The avgerage actual annual rate of return over the last 14 years is 2.11%. No one wants to have to explain this long term sub par performance. It has been a rough 14 years for pension fund investing.

Over the years NYCERS has had a general asset allocation of 70% in stocks and 30% in bonds. With that allocation and using a US stock index fund and a core bond strategy the market would have given NYCERS an average annual rate of return of 3.59% over the last 14 years. This is not anything to write home about but it would have produced an extra $11B over the $47B closing balance that NYCERS had at the end of 2013.

On a side issue, you can see how dangerous the actuary's 8%/7% interest rate assumption is.

The 2000 closing balance, $42.9B, was 99.9% based on market values. In contrast, the 2013 closing balance, $47.2B, is only 85% market based due to the illiquid non-market based components of the current portfolio. The $47.2B includes a $7.2B estimate for private equity, real estate, and hedge fund assets. This estimate is always open to question and raises the very real possibility that the $11B shortfall is even larger.

In conjunction with this rise in illiquid assets NYCERS has shifted out of the the index/core strategy that it previously followed. In 2000, the NYCERS portfolio was 71% invested in an index/core strategy. By 2013 NYCERS had only a 39% position in the index/core strategy.

To be accurate the trustess outperformed the market four times (marked in column 4) over the last 14 years but it was not enough to make up for the damage incurred in the other 10 years.

The last column of the chart lists the investment fees incurred each year. You can see that from 2000 to 2004 these fees were in the range of 10 basis points. Since 2005, the trustees have lost control of these fees. I suspect that the trustees are most likely not aware of the actual fees being paid or the content of the investment contracts they have agreed to.

NYCERS - Actual Returns Versus Index/Core Returns 2000 to 2013

Fiscal Year	Close Balance	Net Cash Flow	Actual Rate of Return	Index/Core Return (70%/30%)	S&P/Bond Returns	Index/Core Close Balance	Fees
1999	$41.9B	$	%	%	%	$	$
2000	$42.8B	-$412M	3.14%	5.52%	6%/4.47%	$43.8B	$32.5M
2001	$38.1B	-$558M	-11.86%	-7.58%	-15.8%/11.65%%	$40.0B	$41.3M
2002	$32.8B	-$1,028M	-11.44%	-10.82%	-19.2%/8.65%	$34.8B	$37.6M
2003	$31.5B	-$1,511M	0.62%	2.36%	-1.5%/11.47%	$34.0B	$29.3M
2004	$34.2B	-$1,202M	12.71%	12.08%	17.1%/0.43%	$36.8B	$35.1M
2005	$35.5B	-$756M	6.30%	5.56%	4.4%/8.2%	$38.1B	$53.9M
2006	$37.3B	-$711M	7.10%	4.23%	6.6%/-1.36%	$39.0B	$69.4M
2007	$42.5B	$368M	13.03%	14.75%	18.46%/6.33%	$45.2B	$98.1M
2008	$39.7	$314M	-7.32%	-8.10%	-14.9%/7.67%	$41.9B	$115.3M
2009	$31.9B	$313M	-20.46%	-17.50%	-28.2%/7.40%	$35.0B	$138.2M
2010	$35.4B	$72M	10.68%	11.63%	12.1%10.49%	$39.3B	$175.3M
2011	$42.4B	$164M	19.39%	20.94%	28.1%/4.15%	$47.8B	$145.1M
2012	$42.7B	$728M	-1.14%	5.01%	3.1%9.35%	$51.0B	$129.5M
2013	$47.2B	$783M	8.81%	12.26%	17.9%/-0.95%	$58.2B	$183.3M

The Wolves at the Gate.

Yesterday in Detroit a federal judge drove a stake through the heart of public pension funds in the United States. If this decision is upheld on appeal, every public pension fund will have to reevaluate its funding and investment assumptions. From now on any shortage could easily fall on the backs of the public employees and retirees.

It is ironic that in the mid 1970's when New York City came close to bankruptcy, it was the city's pension funds that bailed out the city.

Previously, public employees and retirees reasonably felt that state constitutional provisions protected their pensions. That is no longer true.

Public employees and retirees must become totally aggressive so far as protecting their pensions. There is no legal protection for their pensions. It appears that bankruptcy will trump any legal protection you thought was there.

With this decision it is not clear what type of protection the individual pension trust may have. However, even if the trust is outside the reach of the bankruptcy court, the public employer will be able to walk away from any contractual obligation it has to the employees and retirees. The particular state constitution is null and void in federal bankruptcy court. Unlike bond holders who knew that there was a bankruptcy risk, employees and retirees were totally blindsided.

Ok, what needs to be done going forward. Employees and retirees need to force the public employers to properly fund the pension trust every year and the plan trustees to do a better job investing the assets of the fund. This is most acute for municipal pension funds. You don't see Michigan running into bankruptcy court.

What about here in New York City? Since 2000, New York City with the help of the NYCERS and TRS actuary has been underfunding the five city pension funds, not as bad as New Jersey or Illinois, but still not contributing enough. On top of the underfunding, which has a very natural motivation, the NYCERS trustees, and most likely the trustees at the other four pension funds, have made a mess of the investment performance over the last 14 years.

In the past employees and retirees were far too casual about these issues thinking that it was the city's problem if things went bad. No more. It is their problem, if things go bad. The city can now walk away.

The assets of the NYCERS pension fund belongs to the employees and the retirees, not the city. When it comes to money, you trust no one. I just posted a "to do" list for the new NYCERS chair. I need to add another item. Ask the actuary how does he propose to make up the shortfall that his interest rate assumptions have caused at NYCERS since 2000. Of course, the union representatives on the Board of Trustees should have been on top of this fiasco all along.

But just to get everyone focused on how these problems happen consider the following. From 1996 to 2009 Mike Musuraca sat for DC-37 at all the investment meetings of the NYCERS Board. From my experience as the NYCERS executive director, Musuraca was the most forceful trustee on investment issues. In mid 2008 the NYCERS Board voted to hire Blue Wolf as a private equity manager. On January 23, 2009, Musurarca left NYCERS to work for Blue Wolf. The members and retirees of NYCERS can not allow this type of shit to continue.

The New Chair of the NYCERS Board of Trustees

Mayor de Blasio will soon be appointing a new commissioner for the Department of Finance. The position, unfortunately, has a tradition of being filled with political operatives as opposed to public finance/taxation professionals.

The commissioner is, ex officio, a trustee of both the city police and fire pension funds.

The mayor will also be appointing his representative on both the NYCERS and TRS Boards of Trustees. The Mayor can appoint anyone to these two unpaid positions. On the NYCERS board the mayor's representative is the statutory chair. At TRS the chair is elected by the trustees.

Because of the mayor's enormous political and budgetary power, the mayor's representative is the most important member of the NYCERS Board of Trustees.

Prior to 1990, the power structure of the NYCERS Board of Trustees, to a large extent, mirrored the Board of Estimate which was the original governing body of NYCERS up until 1968. With the destruction of the Board of Estimate in 1990 the mayor's power within the city increased radically. That was alos true at NYCERS.

While the mayor's representative has only one vote, it is the most important vote. Even a dissenting vote from the chair on an investment decision is a warning signal to the other trustees.

Mayor Bloomberg's appointees to the NYCERS and the TRS Boards have been a disaster. The mayor has constantly complained about the rising costs of pensions during his three terms but his representatives have failed to control investment costs or institute a sound investment strategy that earns a market rate of return.

Mayor de Blasio's appointee will have the challenge of bringing the annual investment costs for the five pension funds down from the $472.5M (FY-2013) to a rational annual amount of $100M (FY-2002) along with pushing to adopt an index/core strategy which has the potential to earn on average an additional $1.5B a year in asset value for the five city pension funds.

With respect to NYCERS here are some operational recommendations that I hope the mayor's new representative considers:

1. Hire a totally independent investment consultant with no revenue connections to the investment management community.
2. Make all investment contracts public record and provide every trustee with a copy of each contract. It is most likely that the trustees have never seen any of these contracts.
3. Make the Board's investment meetings totally open for all items unless the Law Department gives written direction that a specific item must be dealt with in executive session.
4. Put in place a tight accounting control of the invoice/payment process for all investment expenses and publicly report all payments to the trustees at each meeting and once a year provide the trustees with a copy of the final annual reconciliation of investment expenses for the year.
5. Utilize the NYCERS web site to provide public disclosure of investment data and decisions. The Comptroller's attempt in this area has failed to deliver on the information it promised to provide.
6. Make available to the trustees the full cash flow history of each private equity, real estate, and hedge fund contract on a real time basis. (NYCERS web site)
7. Explore the feasbilty of dropping of all asset classes that do not fit within a index/core strategy.
8. Set 10 basis points as the general limit on fees for all investment contracts. I suspect that this will be a very effective screen for unproductive investments.
9. Almost certainly drop all emerging manager contracts unless their fees are brought under the 10 basis point limit.
10. Review the quality of NYCERS's senior administrative management. This staff was put in place while Martha Stark was chair.
11. On an annual basis provide the trustees with a copy of a complete reconciliation of administrative expenses, This report was dropped in FY-2010. (NYCERS web site)
12. Radically upgrade the agency's monthly production report to include open and closing transaction balances along with incoming work, work completed during the month, and aging information on the outstanding work. (NYCERS web site)

The FY-2013 Pension Investment Fee Increases Hit the Newspapers

In early November, I wrote about the large increase in investment fees in FY-2013 for the five city pension funds

At the end of last week Bloomberg News and the NY Post caught up with this story.

The following is an extract from the NY Post article

“Fees rose in FY 2013 consistent with the recent expansion into alternative asset classes that diversify the portfolio against events like the stock-market collapse in 2008,” said Liu spokesman Matthew Sweeney.
...
Over the fiscal year, the value of the city’s pension funds rose by 12.1 percent, from $122 billion to $137 million as of June 2013.
...
Liu’s successor, Scott Stringer, said he plans to take a “hard look” at how much the outside pension managers are getting paid.
“He believes we need to limit costs, ensure payments are commensurate with performance and leverage our size and relationships with other pension funds to negotiate lower fees,” said a Stringer spokesman.

The excuse given by the Comptroller's office for the FY-2013 increase is not supported by the numbers. With respect to NYCERS, the largest fund, the numbers are as follows:

• 2011: alternate assets equaled $4.5B with total expenses of $145M
• 2012: alternate assets equaled $6.3B with total expenses of $129M
• 2013: alternate assets equaled $7.2B with total expenses of $183M

There appears to be no correlation to the size of the alternative assets classes and the the total investment expenses. In addition, there is always a good amount of skepticism about the quoted values of the alternative asset classes. There is no no market value for them and NYCERS must depend upon "estimates" from the asset managers.

In addition, the comptroller's office gives no objective evidence to support the theory that illiquid alternative asset classes diversify and therefore protect the pension fund portfolio against a stock market collapse. In fact there is a concerted effort by the Comptroller's office to hide the details of these investments.

Secondly, the quoted value of the city's pension funds is incorrect. In FY-2013 the value rose from $111.3B to $124.8B. That was a an increase of 10.5% factoring in a positive cash flow of $1.8B. The 12.1% increase was not correct. Interestingly, the stock index/core bond return was 12.26% for 2013 and would have cost far less than $473M in fees.

Thirdly, Scott Stringer has been on the NYCERS Board of Trustees since 2006. The NYCERS investment fees in 2006 were $69M versus $183M last year. Why has he not taken action against this runaway growth over the last eight years? Why hasn't mayor-elect Bill de Blasio taken action over the last four years? As Public Advoctae he has been a trustee on the NYCERS board since 2010.

To be fair, de Blasio and Stringer were not the key players in the investment decisions at NYCERS. That falls to the Comptroller and the major unions on the board with the mayor's representative acquiescing to their decisions.

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.

Hot Line for State Pension Fund Audit

In July the NYS Department of Financial Serives (DFS) announced an audit of the seven public pension funds in New York State.

Here's a news article dated yesterday announcing that the DFS has set up a hot line for whistle blowers to report wrong doing at any of the public pension funds in New York State. You can also check the DFS web site for the phone number .

I guess the the DFS auditors have found a need to go around the the management structures at the state and city pension funds to get a more unfiltered view of events at the pension funds.

Or maybe they read my posting about investment consultants.

FY-2013 Investment Returns: NYCERS Fails to Match the S&P 500 Index, Again.

The Comptroller has just released the NYC FY-2013 CAFR (Comprehensive Annual Financial Report) : the city's annual financial statement. Pension investment expenses have increased significantly from FY-2012, $472.5M up from $370.3M. This is a reversal from the previous two years.

Specifically, NYCERS expenses jumped from $129.5M to $183.3M (see original expense history).

As of June 30, 2013, the NYCERS closing balance increased from $42.7B to $47.2B but given the 17.9% increase in the S&P 500 index that number should have been $48.6B (Bond Core = -.95% with a 70/30 allocation). With a waste of $150M in investment expenses NYCERS is short $1.55B for FY-2103 that a prudent investment policy would have provided. For the record NYCERS missed the Index/Core threshold by $2.6B in FY-2012.

The truly scary thought is that if NYCERS had followed a simple prudent investment strategy over the last last 14 years, the June 30, 2013 closing balance would be $58B. In this year's CAFR the actuary estimated the NYCERS current pension liability at $65.3B. A sane investment policy can go a long way in solving pension problems.

Dr. Barry Liebowitz's Retirement

I just cane across this notice below of Dr. Barry Liebowitz's upcoming retirement.

October 28, 2013
By Neal Tepel
New York, NY, - Dr. Barry Liebowitz announced that he will step down as President of Doctors Council SEIU on December 31, 2013, the nation's oldest and largest union of attending physicians and dentists. His notable leadership of Doctors Council has spanned 33 years, one of the longest tenures of a union President in New York City, during which he helped grow the organization from a few hundred members in New York City to a national union for doctors and voice for patients.

I want to take this moment to let every NYC municipal worker know what an enormous impact this labor leader/doctor had on their pension benefits. For over seven years (1981-1988) Dr. Liebowitz and the late Don Meyers fought the city in the NYS courts to stop the illegal exclusion of part-time workers from membership in NYCERS and their lawful pension rights.

After losing battles in the trial and the appellate courts Dr. Liebowitz finally won the war at the N.Y.S. Court of Appeals (Doctors' Council v. NYCERS, 71 N.Y. 2d 889 (1988)) with an unanimous reversal of the lower courts' decisions. I can not overstate how powerful this decision, along with subsequent 1992 Part-Time Pension Law (Chapter 749), was not only to the benefits of part-time workers but for all city workers.

It put the City of New York, the Law Department, and NYCERS on notice that it could not restrict pension benefits unless the state legislature gave them specific authority to curtail those rights granted by the legislature.

This was a case of a union defending its members, something that we don't see a lot these days. Not bad for a doctor!

FYI: Benefit Enhanacement Law and Twenty Five Year Detective Investigator Retirement Benefit (Tier 2)

The maximum benefit under the Twenty Five (25) Year Detective Investigator Plan is equal to the benefit based on 32 years of credited service (Section 444) plus the 2 years of added service provided by Section 911 for a total of 34 years.

The actual benefit limit is 55% times the member's final 12 months earnings + (1.7% * 9) times the member's final average salary (120% capped three year average salary).

In contrast there is no maximum benefit limit on the Twenty (20) Year Detective Investigator Plan (Tier 2) (see Section 157.4 below). This plan, however, is not eligible for the pension enhancement benefit (S.911).

Enhancement Statute

§ 911. Benefit enhancements.

a. 1. An eligible member other than a member of the New York city teachers' retirement system (i) with a date of membership in a retirement system prior to July twenty-seventh, nineteen hundred seventy-six and (ii) who was in active service on June first, two thousand and continued in active service until October first, two thousand, shall receive one-twelfth of a year of additional retirement credit for each year of retirement credit for service rendered as of the date of retirement, vesting, transfer or death, if applicable, up to a maximum of two years of retirement credit. Such additional credit shall be available for all purposes, including fulfilling the qualifying service requirements of Plans A and C, if applicable.

2. An eligible member who is a member of the New York city teachers' retirement system (i) with a date of membership prior to July twenty-seventh, nineteen hundred seventy-six and (ii) who was in active service on October first, two thousand and (A) continued in active service up to and including June thirtieth, two thousand one, shall receive one-twelfth of a year of additional retirement credit for each year of retirement credit for service rendered as of the date of retirement, vesting, transfer or death, if applicable, up to a maximum of one year of retirement credit or (B) continued in active service up to and including June thirtieth, two thousand two, shall receive one-twelfth of a year of additional retirement credit for each year of retirement credit for service rendered as of the date of retirement, vesting, transfer or death, if applicable, up to a maximum of two years of retirement credit. No eligible member shall receive more than two years of retirement credit pursuant to this section. Such additional credit shall be available for all purposes, including fulfilling the qualifying service requirements of Plan A or C, if applicable.

3. Notwithstanding any other provisions of law, if the service retirement benefit of an eligible member is subject to a maximum retirement benefit, including any limitation imposed by section four hundred forty-four of this chapter, the additional benefit authorized by this subdivision shall be computed by multiplying the pensionable salary base times the number of years of service credit granted by this subdivision times the benefit fraction of the plan under which the employee retires.

Tier 2 Section 444 Benefit Limitation Statute

§ 444. Maximum retirement benefits.

a. Except as provided in subdivision c of section four hundred forty-five-a of this article, subdivision c of section four hundred forty-five-b of this article, subdivision c of section four hundred forty-five-c of this article, subdivision c of section four hundred forty-five-d of this article as added by chapter four hundred seventy-two of the laws of nineteen hundred ninety-five, subdivision c of section four hundred forty-five-e of this article, subdivision c of section four hundred forty-five-f of this article and subdivision c of section four hundred forty-five-h of this article, the maximum retirement benefit computed without optional modification provided to a member of a retirement system who is subject to the provisions of this article, other than a police officer, a firefighter, an investigator member of the New York city employees' retirement system, a member of the uniformed personnel in institutions under the jurisdiction of the New York city department of correction who receives a performance of duty disability retirement allowance, a member of the uniformed personnel in institutions under the jurisdiction of the department of corrections and community supervision or a security hospital treatment assistant, as those terms are defined in subdivision i of section eighty-nine of this chapter, who receives a performance of duty disability retirement allowance, a member of a teachers' retirement system, New York city employees' retirement system, New York city board of education retirement system or a member of the New York state and local employees' retirement system or a member of the New York city employees' retirement system or New York city board of education retirement system employed as a special officer, parking control specialist, school safety agent, campus peace officer, taxi and limousine inspector or a police communications member and who receives a performance of duty disability pension, from funds other than those based on a member's own or increased-take-home-pay contributions, shall, before any reduction for early retirement, be sixty per centum of the first fifteen thousand three hundred dollars of final average salary, and fifty per centum of final average salary in excess of fifteen thousand three hundred dollars, and forty per centum of final average salary in excess of twenty-seven thousand three hundred dollars, provided, however, that the benefits provided by subdivision c of section four hundred forty-five-d of this article as added by chapter four hundred seventy-two of the laws of nineteen hundred ninety-five based upon the additional member contributions required by subdivision d of such section four hundred forty-five-d shall be subject to the maximum retirement benefit computations set forth in this section. The maximum retirement benefit computed without optional modification payable to a police officer, an investigator member of the New York city employees' retirement system or a firefighter shall equal that payable upon completion of thirty years of service, except that the maximum service retirement benefit computed without optional modification shall equal that payable upon completion of thirty-two years of service.

b. Notwithstanding the provisions of subdivision a of this section, a member employed as a uniformed court officer or peace officer in the unified court system granted accidental disability retirement benefits shall receive a pension of three-quarters of final average salary. The payment of such pension shall be subject to the provisions of section sixty-four of this chapter.

c. Notwithstanding section three hundred sixty-three-c of this chapter, accidentally disabled police officers and firefighters shall receive a pension of three-quarters of their final average salary. The payment of such pension shall be subject to the provisions of section three hundred sixty-four of this chapter.

d. Notwithstanding the provisions of subdivision a of this section, the retirement benefit payable to a member of the New York city police pension fund or the New York city fire department pension fund who has completed thirty or more years of service at the time of his or her retirement shall be based on the total service with which such member has been credited at retirement.

Tier 2 Twenty (20) Year Detective Investigator Plan - benefit description

Section 157.4 (NYC Admin Code)

2. Notwithstanding any other provision of law to the contrary, the early service retirement benefit for participants in the twenty year retirement program who retire pursuant to paragraph one of this subdivision shall be a retirement allowance consisting of:
(i) an amount, on account of the required minimum period of service, equal to fifty percent of the salary earned in the year prior to his or her retirement; plus
(ii) an amount for each additional year of credited service as an investigator member, or fraction thereof, beyond such required minimum period of service equal to one-sixtieth of the average annual earnings from his or her date of eligibility for retirement to the actual date of retirement; plus
(iii) an amount for each year, or fraction thereof, of service credit not included in subparagraph (i) or (ii) of this paragraph equal to fifty-five percent of one-sixtieth of his or her final compensation if such service credit was for service rendered prior to October first, nineteen hundred fifty-one, or seventy-five percent of one-sixtieth of his or her final compensation if such service was rendered subsequent to October first, nineteen hundred fifty-one.

Stop the Bleeding - Public Pension Funds Under Attack - Report and NY Times article

I have been hammering the NYCERS trustees for several years about about their investment decisions, in particular, allocations to private equity, real estate partnerships, and hedge funds.

Now there is a growing record of how misplaced these investments are for public pension funds.

Read the October 20, 2013 NY Times article by Gretchen Morgenson, Ted Seidle's recap article in Forbes on the investigation to the assault on the Employee Retirement System of Rhode Island, and the broad sweeping expose in Rolling Stone magazine.

Here is the link to the full investigative report.

Maybe the new mayor could find the money for his pre-K program by stopping the bleeding of the pension funds by Wall Street.

DOI and Mazza

The Department of Investigation (DOI) recently released a fraud report involving theft of NYCERS checks.

Below is an excerpt from the beginning of the report which was 23 pages long and dealt with the loss of nearly $384,000 from NYCERS. The report, while accurate about the fraudulant cashing of NYCERS benefit checks, is a lot to do about a relatively small issue. DOI rarelly reports a complete accounting of the actual convictions and prison sentences that result from its investigations.

I want, however, to point out specifically the mention of Commissioner Gill Hearn's thanks to Karen Mazza at the end of the excerpt. Of course, Gill Hearn doesn't mention that she has not completed the investigation that DOI had committed to pursue into perjury and corruption charges against Mazza and other NYCERS management staff. I am sure the financial impact of corrupt management at NYCERS is far greater than $384,000.

FOR IMMEDIATE RELEASE
CONTACT: DIANE STRUZZI
WEDNESDAY, MAY 9, 2012
(212) 825-5931
DOI RELEASES PENSION FRAUD REPORT INVOLVING EIGHT SEPARATE CASES IN WHICH INDIVIDUALS ATTEMPTED TO DEFRAUD OR DEFRAUDED NYCERS OF MORE THAN $400,000
ROSE GILL HEARN, Commissioner of the New York City Department of Investigation (“DOI”), released a report today detailing eight recent investigations into fraud upon the New York City Employees’ Retirement System (“NYCERS“), the country’s largest municipal pension system. The eight investigations included in this report are the most recent that DOI has conducted and illustrate a range of fraudulent schemes that include family members and beneficiaries of deceased pensioners taking NYCERS funds they were not entitled to receive and the theft of NYCERS checks by ndividuals who falsely claimed they had not received the funds. These eight investigations identified nearly $384,000 in NYCERS funds that individuals wrongfully obtained and an attempt to obtain approximately $17,200, which was thwarted by DOI and NYCERS. Five of the eight individuals have already been criminally charged and three of those individuals have pleaded guilty, with one individual receiving a 60-day jail sentence just last week. A copy of the report is attached to this release.
...
Commissioner Gill Hearn thanked NYCERS Executive Director Diane D’Alessandro, NYCERS Director of Security Craig Thornton, and NYCERS General Counsel Karen Mazza, and their staffs, for their assistance and cooperation in these investigations.

State Insurance Audit Checklist

Since July 29. 2013 the State Insurance Department (NYS DFS) has accessed my blog 29 times. So I thought I would provide them with a suggested reading list. Below is a starting list. If I see something else that looks interesting, I'll add to the list.

• Who got the $140M?
• Why was the Transit Operating Force death benefit changed?
• The former chair of the NYCERS Board of Trustees
• Why is NYCERS paying the Comptroller?
• The civil service qualifications for the current NYCERS executive director
• Unaccounted investment fees , background , and more
• Investment madness
• Lack of disclosure on private equity and real estate transactions
• Hedge funds
• Private equity managers
• Delays in processing loans
• Examples of SPD errors ( A , B )
• NYCERS perjury
• D.O.I. and the perjury charge
• Funny wrinkle to the perjury and corruption story
• The WC offset nightmare
• Denial of due process
• The assumed interest rate
• Finally 7%, sort of
• Delays in pension benefit revisions
• The Met-Life building
• Disaster recovery site at L.I.C.
• Allegra Capital and lack of accounting oversight
• Harassment of EMS disabled retirees, and more
• Outside legal services
• Background on past State Insurance Department reports

NY Times - Sorkin - Pension Investment Consultants - Transparency - Where the Money Comes From

In an October 1, 2013 NY Times article Andrew Ross Sorkin writes about the investment consultants that are hired by U.S. pensions funds. His focus is the lack of transparency with respect to the performance of these consultants.

While anyone hiring an investment consultant should want to know the quality of the advice that the consultant has given in the past, what is even more important is how does the consultant makes his/her money.

With respect to pension funds, investment consultants primarily provide advice on asset allocation and help in the selection, monitoring, and termination of investment managers. Unfortunately these consultants earn revenues not only from pension funds but also from investment managers that the consultants are hired to monitor.

Years ago I told my young son the story of the emperor's new clothes. It made no sense to him that people at court would not have told the emperor about the scam. Why did it fall to the child to point out the obvious?

The entire pension fund industry knows that the investment consultant structure is broken but as in the story there is shortage of courage among the adults. It is obvious that the pension funds should insist that investment consultants earn only revenue from pension funds and never anything from the investment managers that they are required to critique. Of course, pension funds would have to pay the investment consultants a lot more money. It would, however, be money well spent.

As further background on this structural flaw refer to this old posting I wrote in 2010. If anything, the situation has gotten worse since then.

Payroll & Pension - Police & Fire - FY-2014

In its FY-2014 Adopted Budget, NYC has funded

• 36,164 police officers with a payroll of $3,676.5M and pension cost of $2,320.9M
• 10,910 fire fighters with a payroll of $1,257.5M and a pension cost of $960.7M.
• 114,404 teachers with a payroll of $8,987.5M and a pension cost of $2,917.0M
• 111,642 general workers with a payroll of $8,424.5M and a pension cost of $1.934.0M

Unfortunately, this is the heart of the pension issue for NYC. For every dollar the city pays to a police officer, it is paying 63 cents to the police pension fund and for every dollar it pays to a fire fighter, it pays 76 cents to the fire pension fund.

This is compared to the 33 cents that the city is paying to the teachers pension fund for every dollar it pays to a teacher. Make no mistake, 33 cents is also way out of line but it is far from the insane levels for police and fire.

In addition to the usual investment and funding mistakes the police and fire pension funds have enormous disability burdens, especially the fire fund.

There needs to be a public policy decision made about what is the acceptable pension cost percentage for emergency service employees, teachers, and general government workers. This is the hard point of pension reform.

From calculations ( police , teachers ) that I have done, it appears that for new Tier 6 members (post 4/1/2012) the city will have to make annual pension contributions of 6% of pay for teachers and general workers and 29% of pay for police officers and fire fighters (see note below). Are these percentages acceptable to the voters of NYC?

It is not clear how the disability issue will play out in Tier 6. The benefits are now lower for police and fire. We will have to see if the frequency drops. This is as much a management problem as a pension problem.

Note:
I used an annual salary increase assumption of 2.5% for teacher/general workers and 5% for police and fire. I used a 5.5% pre-retirement assumed rate of return and a 5% post-retirement return. This also assumes that the actuary directs the city to contribute at least 6% and 26% every year and that the trustees adopt an investment policy that earns a 5.5% annual rate of return, a reasonable target.
I've done some research on police salaries and 7% is a more realistic salary increase rate. This increases the employer contribution rate (Tier 6) to 29%

The Haze Over the Disaster Recovery Site at Long Island City - 2013

On March 14, 2013 the NYCERs Board of Trustees adopted resolutions approving the NYCERS administrative and loan operating budgets for FY-2014. The administrative budget was $44.6M with an added $7.6M for fringe benefits. The loan budget was $1.7M with $.3M for fringe benefits. The loan budget is totally paid by the active members through fees for loans. The executive director, Diane D’Alessandro, provided a two and a half page justification for these expenditures.

2011

In September 12, 2011 posting, I wrote about the fiasco surrounding the NYCERS disaster recovery (DR) site at Long Island City (LIC). At the time there was a five year delay in opening the DR site.

2012

In her February, 2012 justification for the FY-2013 NYCERS administrative budget D’Alessandro referred to the DR site issue as follows:

“The build-out of the business continuity site is nearing completion. Once the construction phase is finalized, the installation of the secondary data center will commence. This final phase will extend through FY-2103. Upon completion, the secondary data center will be equipped with a mainframe computer and have the capability for site-to-site data replication and data updating allowing for the eventual elimination of the Sterling Forest backup site. In an emergency, the LIC will have the capacity to house approximately 300 staff working on a two shift model. During normal business, the facility will be utilized for document management, training and IT testing and backup functions.“

In a July 13, 2012 posting, I commented on D’Alessandro’s failure to address the then six year delay in opening the LIC DR site and all the other problems surrounding this project.

2013

Part of the FY-2014 administrative budget is a $2.9M non payroll (OTPS) cost for maintaining the LIC DR site. In her FY-2014 budget justification D’Alessandro makes only the following mention of the LIC site:

“With the completion of the secondary data center at Long Island City (LIC), NYCERS will shift its focus to restructuring the Adams Street data center. Proposed upgrades will improve the utilization of space and enhance cooling, heating and air flow systems. This effort will provide greater energy efficiency, expanded storage capacity and improved functionality.”

From this terse comment you might assume that the DR site is fully functional. You will notice, however, that there is no mention of the actual completion date of the site, the award of a certificate of occupancy or the passage of fire inspection for the LIC site. There is also no mention of maximum occupancy for the site and there is no mention of a full operational test of the site. Remember the original 2006 lease renewal comes up in FY-2016, just two years away.

Given the history of this project it is quite possible that the site is not operational at all in spite of D’Alessandro’s attempt to give that impression. Of course it now seems that replacing the air conditioning unit in the computer room at Adams Street is the new hot item. At least, it appears that is what she is talking about. "Restructuring" and "Upgrades" are not words loaded with a lot of information.

What Happened to the Perjury Investigation at NYCERS - Thompson & de Blasio

In 2009, four years ago, the Public Adovcate and the Comptroller, both NYCERS trsutees, requested D.O.I. to investigate a charge of perjury and official misconduct by senior management at NYCERS. As of today there has been no resolution of those charges. The trustees made this request in response to specific evidence that I had given to the trustees of the perjury by NYCERS senior staff.

In 2009, Bill Thompson was a NYCERS trustee and the Public Advocate's office made the actual request for the investigation. In 2010, de Blasio became the Public Advocate and a NYCERS trustee.

Thompson and de Blasio are now running for mayor of New York City. Shouldn't they clear up this unfinished business before they take on the responsibilities of mayor? Scott Stringer was also a NYCERS trustee in 2009 and has equal responsibility for cleaning up this mess.

Denial of Benefits: Line of Duty Disability for EMT Workers

If NYC Emergency Medical Technicians are disabled because of an injury which happens on the job, they are entitled to a life time 3/4's benefit. The benefit is offset by any associated Workers Compensation payments. The precise wording of the statute is listed below. The key words in the statute are "shall be paid". That means from the date an EMT is disabled, NYCERS has an obligation to pay that person a 3/4's benefit. NYCERS is not given any discretion in this matter except to determine that such worker is disabled because of a line of duty injury.

Line of Duty Disability Statute for NYC EMT's

§ 607-b. Performance of duty disability retirement. a. Any member of the New York city employees' retirement system who is employed by the city of New York or by the New York city health and hospital corporation in the position of emergency medical technician or advanced emergency medical technician, as those terms are defined in section three thousand one of the public health law, who, on or after March seventeenth, nineteen hundred ninety-six, becomes physically or mentally incapacitated for the performance of duties as the natural and proximate result of an injury, sustained in the performance or discharge of his or her duties shall be paid a performance of duty disability retirement allowance equal to three-quarters of final average salary, subject to section 13-176 of the administrative code of the city of New York.

Now it has come to my attention that NYCERS has convinced a trial judge, Arthur M. Schack, in the Second Department that a disabled EMT worker must be employed as an EMT worker to be eligible to file for this benefit.

FDNY had terminated this particular EMT member for medical reasons under Section 72 of the state civil service law. Subsequently, when she tried to apply for a S.607-b disability, NYCERS told her she was not eligible to file because she was no longer working for FDNY.

Since the statute has no filing requirement, this must be a rule adopted by NYCERS. A rule that allows NYCERS to deny to member a benefit that the legislature granted to him/her.

Doctors Council and the Limits on NYCERS Rule Making Authority

Now, the NYS Court of Appeals has previously addresses this issue in Doctors Council v. NYCERS 71 N.Y. 2nd 669 (1988). NYCERS had tried by rule to exclude part-time city workers from membership in the retirement system when the statute stated in the definition of membership "All persons in city service" and "service paid for by the city". Let me quote from the decision:

The NYCERS Board of Trustees surely lacks the authority to create retirement eligibility; it likewise lacks the power to disentitle employees whom the Legislature has endowed. To countenance the latter, as has been urged here by the City, would allow the agency to, in effect, amend the heart of this statute. "An administrative agency cannot by regulatory fiat directly or indirectly countermand a statute enacted by the Legislature" (Servomation Corp. v State Tax Commn., 51 N.Y.2d 608, 612, supra; see, Kurcsics v Merchants Mut. Ins. Co., 49 N.Y.2d 451, 459, supra). Where, as here, the statute described the particular class of persons, "an irrefutable inference must be drawn that what is omitted or not included was intended to be omitted or excluded" (McKinney's Cons Laws of NY, Book 1, Statutes § 240; see, Eaton v New York City Conciliation & Appeals Bd., 56 N.Y.2d 340, 345). Thus, the resolution of the NYCERS Board of Trustees cannot be legitimized by judicial ratification (see, Matter of Industrial Commn. of State of N. Y. v Five Corners Tavern, 47 N.Y.2d 639, 646-647).

This binding decision clearly prohibits NYCERS from creating a rule which "disentitles" a member's right to a benefit.

I have perviously commented on denial of benefits by NYCERS. This is again an example of the abuse of power by NYCERS and its legal staff directed by Karen Mazza. This woman is a total disaster and the trustees must relieve her of her duties.

Needless to say the member did not have the resources to proceed further in the courts and has lost her statutory benefit. NYCERS has again crushed a member.

A Plea to Bill De Blasio, John Liu, and Scott Stringer.

I know this posting is probably a waste but I have to try one last time. I spent over thirty years trying to help the members and retirees of NYCERS and it drives me crazy when I see the current management trashing them.

In a June 30, 2013 posting I wrote about how NYCERS and in particular, Karen Mazza, was crushing a disablity retiree.

I am making a direct appeal to Bill De Blasio, John Liu, and Scott Stringer, and the other members of the NYCERS Board of Trustees to correct Mazza's mistake. If this was March 1, 2005 when I was executive director, NYCERS would have given this retiree his legal due process. I am asking you now as the head of the agency to do the same.

Two days ago I received a copy of a new letter from Mazza concerning this case. This letter is dated July 30, 2013 and is in response to a July 9, 2013 letter from the original lawyer asking the trustees to correct a NYCERS error. The error occurred in 1990 when NYCERS did not process the retiree's application for accident disability under S.507.

In a June 18, 2013 letter, Mazza had denied an initial April 19, 2013 request from the lawyer. Mazza had stated that the Medical Board had determined that the incident was not an accident and therefore there was no need to process the member's S.507 application.

In the July 30, 2013 letter Mazza was forced to apologize for the false statement she made in her first letter. She now claims:

What I should have written was: "Since the Medical Board had already determined that the on-duty event did not aggravate the condition he claimed to be disabling, he was not eligible to be considered under S.507 of the RSSL for accident disability."

As an aside, this woman is a licensed attorney getting paid a lot of money. To any competent lawyer this correspondence above is a hard reflection on Mazza's competence as lawyer. It reminds me of a clip from a deposition from years ago. You can read it below.

We also can see Mazza's dubious footwork in the following sentence trying to shift responsibility for her words to the outside lawyer:

I apologize for this error. Nevertheless, on the basis of our prior correspondence about this case, you should have been aware that the Medical Board's determination was related to the causation issue rather than the accident/incident issue.

While Mazza's original statement was false, her new statement about causation is both false and absurd. If the Medical Board finds a member not disabled under S.605, it is not possible for the Board to determine whether the incident caused a nonexistent disability. The Board is not authorized to make hypothetical determinations.

In addition, the final determinations on causation and accident are made by the Board of Trustees. Since the member, under S.605, was not disabled, the Trustees never addressed the causation and/or accident issues for this member nor made a final determination on these issues. The member had no opportunity at that time to argue these two issues before the Board of Trustees.

Since causation was not dealt with in the S.605 process, it is absolutely clear the S.507 application should have been processed in 1990 but it was not. No notice of denial was given to the member in 1990. Since NYCERS must correct all errors, it must process the original S.507 application.

The Medical Board must review the Social Security Administration disability decision and the documentation that supported that decision. They must accept the disability determination made by the Social Security Administration in spite of the fact that it is contrary to their own medical determination. They then must in good faith make recommendations on causation and accident relative to the disability and the claimed incident.

The Medical Board's recommendations must then be submitted to the Board of Trustees to make the decision about whether the incident caused the disabilty and whether the incident was an accident. The retiree has the right to argue his case before the trustees.

In closing, I am asking Bill De Blasio, John Liu, Scott Stringer, and the other trustees to do the right thing.

From an old Mazza deposition, "What I Wrote is Not What I Meant."

          16          Q.    I will direct your attention to the

          17     upper part of the memo.

          18                What do you mean you're uncomfortable

          19     if anybody in-house asks to see your deleted

          20     E-mails; uncomfortable about what?

          21          A.    I wanted to know if anybody else was

          22     asking to look at those deleted E-mails.

          23          Q.    That wasn't my question.  I understand

          24     that.  That is what it says.  My question to you

          25     is, why were you uncomfortable about this
 

                                                                  61

           1                            Mazza

           2     information being recoverable, the deleted

           3     E-mails?

           4                MR. MARKS:  Objection to the form.

           5          A.    I wasn't uncomfortable with it being

           6     recoverable.  I was uncomfortable with other

           7     people asking to see it.

           8          Q.    I am reading what you wrote.  "I am

           9     somewhat uncomfortable with this info being

          10     recoverable."  That is not my words.  That is what

          11     it says here.

          12                My question is, when you wrote this,

          13     why did you say that?  What were you uncomfortable

          14     with about having this information, that is the

          15     deleted E-mails, being recoverable?

          16                MR. MARKS:  Objection to the form.

          17          A.    That is not -- what I wrote is not what

          18     I meant.  When I say recoverable, I meant being

          19     seen by somebody else.

          20          Q.    Well, you couldn't see it if it wasn't

          21     recovered.

          22          A.    Right.

          23          Q.    Why were you uncomfortable that the

          24     E-mails that you had deleted would be seen by

          25     somebody else "in-house"?  Why?
 

                                                                  62

           1                            Mazza

           2          A.    My purpose in writing that paragraph

           3     was, we were in the middle of a DOI investigation

           4     and I wanted to know if anybody else was asking

           5     Kin to show them my deleted E-mails.

           6          Q.    You're not answering my question.

           7                I asked you, using your own words, why

           8     were you uncomfortable with this information being

           9     recoverable.  I am asking you why.

          10          A.    I answered you and said that --

          11          Q.    No, you haven't answered me.  Why were

          12     you uncomfortable; because it would show that you

          13     doctored a resume?

          14          A.    No.

          15          Q.    Why were you uncomfortable; because you

          16     deleted E-mails and it related to a subject that

          17     you were sitting on a panel?

          18          A.    What I said to you in my answer

          19     previously was that what I wrote is not what I

          20     meant.

          21          Q.    You're a lawyer, Ms. Mazza.  The trade

          22     of a lawyer is the usage of words.  I want to

          23     know, what did you mean when you used the words, I

          24     am somewhat uncomfortable with this information

          25     being recoverable?  At that time, what did you
 

                                                                  63

           1                            Mazza

           2     mean?

           3                MR. MARKS:  Objection to the form.

           4          Q.    What did you mean?

           5          A.    What I meant was, I want to know if

           6     Mr. Murphy was asking to see my deleted E-mails.

           7     That is what I meant.

FYI: New York City Labor Costs in FY-2014

Disclaimer: All of the figures listed below come from the NYC OMB web site and the NYS Financial Control Board.

Sometimes the actual hard numbers tell their own story. New York City has budgeted $38.367M ($38+B) for personnel costs in FY-2014. The city will employee 273,120 people during the year.

The fringe costs total $16,021M which leaves $22,346M for actual paychecks. The fringe costs are detailed below:

> >

NYC Personnel Costs for FY-2014

Category	General	Dept. of Education	Retirees – DOE	CUNY	Cultural Affairs	Totals
Social Security Taxes	$ 945,377,286	$ 774,704,532	na	$25,186,254		$1,745,268,072
Health Insurance Premiums	$2,385,907,769	$1,675,842,974	$ 370,353,278	$40,943,606	$1,503,728	$4,474,551,355
Supplemental Welfare Funds	$ 549,405,510	$ 380,688,742	$ 133,715,336	$15,805,711		$1,079,615,299
Workers Compensation	$ 205,196,474	$ 40,142,415		$1,843,985		$247,182,874
Unemployment Insurance	$ 28,256,171	$ 37,760,989		$539,682		$66,556,842
Workers Comp - Other	$56,200,000					$56,200,000
Disability Insurance		$611,303				$611,303
Annuity Fund Payment		$33,812,860				$33,812,860
Non-city Pensions	$78,415,014					$78,415,014
City Non Actuarial Pensions	$57,667,273					$57,667,273
City Actuarial Pensions	$8,180,622,400					$8,180,622,400

Note: Health insurance premiums cover active workers, retiree under age 65, and retirees over age 65. The union welfare funds, administered by the unions, provide added fringe benefits to members of the participating unions. Both of these items need detailed analysis. I think that the city is not getting its money's worth in these areas. In response to the Emblem Health take over of HIP/GHI in 2008, the city produced a very rational argument against the takeover and the city seems to be aware that there is a fundamental problem with the system. There are very entrenched special interests connected with health insurance and welfare funds. (Note: The city runs the welfare fund for city managers.)

City Actuarial Pension Systems

• $2,917.0M (TRS)
• $1,728.1M (NYCERS)
• $ 205.9M (BERS)
• $2,320.9M (Police)
• $ 960.7M (Fire)

Note: Of the $8,132.6M amount, $357.2M is needed to replace investment fees paid in FY-2012 and $106.8M is needed to replace administrative expenses incurred in FY-2012. The city only incurs 55% of NYCERS investment and administrative costs. NYCERS covers other participating employers, like the Transit Authority.

The State Insurance Department Finally Wakes Up!

On Monday, July 29, 2013, the NYS Department of Financial Services (DFS) finally woke up.

In June of 2012, I had pointed out the agency's failure to do its job. And, again in March of this year I detailed continuing delay in its statutory obligation.

DFS is now initiating audits of the seven NYS retirement systems.

For the record, DFS has not released a report since the 2000-2002 audit for NYCERS.

I am absolutely certain that NYCERS needs a rigorous top to bottom audit of everything that it is supposed to be doing. Maybe DFS now has the hard focus it will need to get this job done.

How boring our lives would be without politicians.