Sunday, June 30, 2013

You Can't Trust NYCERS.

Denial of a Request to Correct an Error

I just received a copy of a letter Karen Mazza sent to a lawyer trying to help a former Transit Authority worker who qualified for a NYCERS disability retirement in 1990. Mazza is the director of the Legal Division at NYCERS and is paid $175,000 per year.

This letter is a response to a request by the lawyer asking NYCERS to correct an error that NYCERS had made in 1990 in processing the member’s disability applications. (as per S.13-182 of the NYC Admin. Code). NYCERS had failed to process his Tier-3 S.507 disability application. The agency only processed his Tier-3 S.506 application and granted him this smaller disability benefit.

This processing error had come to light in 2013 in conjunction with NYCERS’s recent discovery of its errors, over a 30 year period, in processing Workers Compensation offsets for certain disability benefits and its harsh campaign to correct those errors. This member is one of the effected retirees. See Note #1 below.

While this letter appears to be innocuous and straight forward on its face, it is not. In the third paragraph of her letter Mazza states in connection with the member’s Tier-4 S.605 disability application:

“Since the Medical Board had already determined that his incident was not an accident he was not eligible to be considered under S.507 of the RSSL for accident disability”

This is a false statement.

The Medical Board in response to the member’s S.605 application determined only that the member was not disabled. Mazza provided no evidence to support her statement. The wording from the final medical report dated June 5, 1990 is as follows:

“The Medical Board, after reviewing all the documentation in the incident involved, the findings by Mr. XXX’s own physicians and the diagnostic tests performed , found insufficient objective medical evidence to substantiate Mr. XXX’s claim of disability and recommendation was made that he was referred to Dr. XXX, neurologist for neurological exam.

Dr. XXX examined Mr. XXX on 4/12/90 and reviewed the history and noted the complaints of the applicant. As a result of his neurologic examination, Dr. XXX came to the conclusion that there was no objective evidence of neurologic disorder in Mr. XXX at that time.

The Medical Board, after careful consideration of all the facets of this case and the report of Dr. XXX, reaffirm its previous decision and recommends denial of the application for accident disability retirement.”

When the Medical Board finds that an applicant is not disabled, its job is done. Procedurally and logically, it does not address the issues of whether the "on the job" incident caused the disability or whether the incident is an accident. An “accident” has a legal definition created by a court decision.

In addition, while the Medical Board’s finding on disability is definitive, the Medical Board’s findings on causation and accident, when necessary, are only advisory. The NYCERS Board of Trustees is, by statute, the final arbiter of these two issues. See also Note #2 below.

In contrast to the S.605 benefit, the disability decision for the S.506 & S.507 disability benefits is determined by the member’s eligibility for primary social security disability benefits. This member was so eligible.

Like S.605, the S.507 benefit requires that the NYCERS Board of Trustees determine that an on the job incident caused the disability and that the incident was an accident. The trustees refer to a Medical Board recommendation when making their decision but are not bound by it. The member may or may not be able to clear that hurdle but he is entitled to try.

The S.506 benefit only requires 5 years of service in addition to the social security disability benefit. The member had 8 years of service. This is the benefit he was given by NYCERS and it began in 1986 when the social security award began.

After NYCERS denied his S.605 application, the member requested that his application be processed under Article 14 (Tier 3). NYCERS processed his S.506 application but not his S.507 application. Needless to say the S.507 benefit is significantly greater than the S.506 benefit.

I suspect that the medical division incorrectly assumed that the member’s S.605 denial was based on either the causation or the accident issues. The agency was under very tight budgetary constraints in 1990.

Benefit Difference Between S.506 and S.507

The benefit under S.506 is 33% times a three year average compensation minus two offsets, 50% of the social security benefit and 100% of any workers compensation award, plus the Tier-3 annual cost of living adjustment.

The S.507 benefit is the same as S.506 benefit except that the percentage is 60%, much higher than the 33% in S.506.

In 1991 NYCERS using a $35,426 three year average compensation computed the member’s S.506 benefit to be equal to $11,808. It was then reduced by $2,790 (50% of his social security benefit). The reduced benefit was $9,018/year. At the time NYCERS did not apply any workers compensation offset. This was a mistake. The benefit after the offset for the workers compensation award ($7,800/year) was $1,218/year, a very small amount.

If NYCERS had processed the member’s S.507 application and the trustees had found that the member had been disabled by an on the job accident, his annual benefit would have been $21,255. With the two offsets it would then have been $10,665. If he had been granted the S.507, then he actually has been underpaid since 1986.


Now NYCERS refuses to correct this error using lies to justify its denial. The retiree does not have the resources to mount a legal challenge. He has no recourse but wait for over 15 years while NYCERS extracts its money. What ever happened to the union representatives on the Board of Trustees. They had no trouble getting a disability benefit for the son of a DC-37 union official, Mark Shaplo who plead guilty to fixing a 1996 contract ratification vote.

What is the lesson learned here? You can not trust NYCERS. The senior management has a record of incompetence and corruption and it is the members and retirees who suffer.  

Note #1: Workers Compensation Offset

In December, 2012 NYCERS notified the member that the agency had discovered that it had failed to apply the workers compensation offset to his benefit in 1991. The WC award was $150/week, $7,800 a year starting in 1989.

As a result NYCERS claimed that the retiree was overpaid by $186,199 from March, 1989 to December, 2012. NYCERS provided no detailed spreadsheet outlining the overpayments. NYCERS also did not detail the repayment amounts or the repayment schedule. A quick calculation of the WC payment of $7,800/year for the period is equal to only $108,000.

NYCERS suspended the retiree’s pension as of January, 2013. It did not state specifically when the agency would restore his pension. The agency stated only that at some undetermined date in the future he would be reinstated when the debt was paid off.

There are also significant COLA payments attached to this benefit which impact the overpayment - repayment schedule.

While it is obvious NYCERS needs to take action to recoup an overpayment, this situation was caused by a NYCERS error and NYCERS should show some consideration to effected retirees.

Note #2: More Deception

While admitting in paragraph two of her letter that the Medical Board found the member not disabled, Mazza strangely adds the following sentence possibly hoping to confuse the reader into thinking that The Medical Board had decided that the incident had not caused the disability:

“They went on to find that he was on restricted duty at the time and the incident did not aggravate the non-line of duty injury”

This is not a finding that the incident did not cause the disability because there was no disability as far as the Medical Board was concerned. According to procedure there was also no mention about whether the incident was an accident in the Medical Board report. For the record restricted duty is no different than full duty with respect to being on the job.

There is also a bogus reference to the fact that the member was represented by counsel throughout the entire process. NYCERS did nor deny the member's S.507 application. They failed to process it. This is an issue about NYCERS making a mistake and fixing it as required by Section 13-182 of the NYC Admin. Code. Ask any disabled retiree with a workers compensation offset.

It always amazes me that I hired Mazza and gave her a second chance when she falsified her time sheets. I guess we all make mistakes. Too bad I can’t fix this one.

Wednesday, June 26, 2013

Tier 6: Benefits vs Costs

I've created a spreadsheet modeling the pension benefit for a typical long term city worker under Tier 6. Comments about problems with public pension plans rarely go into specific details relating benefits with costs. It is always helpful to examine the details to get a true picture of problem.

Let us assume a city employee starts working for the city (and joins NYCERS) at age 22 with a salary of $25,000. If the member gets on average a 2.5% pay increase each year (probably too optimistic) and works to age 55 or age 63, his/her annual pension benefit under Tier 6 will be:

  • Age 63: $51,768 based on a five year avg. salary of $65,527, 42 years of service, and $60,127 required employee contributions.
  • Age 55: $17,619 based on a five year avg. salary of $53,782, 34 years of service, and $42,428 required employee contributions.

What is very interesting about these benefits is how the city's cost for theses benefits fluctuate based on what NYCERS actually earns on its investments.

Currently NYCERS is using a 7% assumed interest rate (AIR) for its assets. (See Chapter 3 of the Laws of 2013 .) This is the rate of return that NYCERS projects that it will earn each year on its assets. NYCERS also currently uses 7% annuity factors to calculate the present value of pension benefits at the point of retirement. Again, this is a rate of return assumption over the lifetime of the retiree.

The city's costs for these two benefits under the 7% assumption are:

  • The age 63 benefit has a present value of $495,566 which requires the city to contribute $52,809 over 42 years or 2.9% of salary each year. This amount along with the $60,127 contributed by the member will generate a sum equal to $496,983 at retirement.
  • The age 55 benefit has a present value of $193,213 which requires the city to contribute $17,099 over 34 years or 1.3% of salary each year. This amount along with the $42,428 contributed by the member will generate a sum equal to $193,966 at retirement.

If, however, NYCERS earns on average only 5% on its assets, the cost to the city changes significantly. This would also require NYCERS to use a 5% annuity factor at retirement to calculate the benefit's present value. As a historical note NYCERS used 4% annuity factors up until the late 1980's when it switched to 7% factors to blunt the cost of eliminating gender discrimination ordered by federal courts. The change in costs for a 5% rate of return are listed below:

  • The age 63 benefit has a present value of $587,356 which requires the city to contribute $152,964 over 42 years or 8.4% of salary each year. This amount along with the $60,127 contributed by the member will generate a sum equal to $586,272 at retirement.
  • The age 55 benefit has a present value of $235,984 which requires the city to contribute $61,820 over 34 years or 4.7% of salary each year. This amount along with the $42,428 contributed by the member will generate a sum equal to $235,870 at retirement.

It is incredibly clear from these figures ($52,809 vs $152,964) that the NYCERS trustees must be consistently successful with their investment decisions. There needs to be a hard and open review each year on whether the trustees made the 7% target or failed to get the job done. It can not be hidden in executive sessions behind closed doors. There must be a public record of investment failures. You only have to look at Detroit. It is the workers and retirees who are at risk of being destroyed. The trustees are long gone working for hedge & private equity funds.

At the very least, the NYS Department of Financial Services should be critiquing the investment performance of all seven public pension funds in New York State. The last report only covers up to 2002, which is over 11 years ago. It is strange that DFS will be starting a new audit at NYCERS in FY-2014 and they still haven't produced any report since 2002.

Thursday, June 6, 2013

No Contract and Pensions

The following is a very good question that I just received from a recent retiree:

Dear Mr. Murphy,

I and probably many other recently retired NYC employees are probably wondering the same thing. If, by some miracle, the next mayor does the decent thing and awards retroactive raises to New York City municipal employees, what happens to those of us who worked during that time when we received no raises but are now retired?

1. Do we get a lump sum retroactive check to cover the time we worked without a raise that has now been granted? 2. More importantly, do the retroactive raises become part of our Final Average Salary and will our pensions be increased accordingly by NYCERS?


Usually when the city and a union retroactively settle a contract, everyone working during the retroactive period gets a lump sum back payment for that period including workers who have retired before the settlement date. In this scenario the back pay is included in the retiree's compensation base and is used to recalculate his/her pension benefit. So far, so good.

Collective bargaining agreements, however, are free form contracts that can be structured in any way that the two parties agree to. As far as I know all city unions are currently working without a contract. The old contracts are in force on a continuing basis. The settlement of these contracts at some point in the future is going to be a difficult feat no matter who is elected the new mayor because of the length of the retroactive period.

I would be very worried about what provisions the parties will agree to in order to reach a settlement.

If the retiree's union agrees to a provision that a worker must be on active payroll on the date that the contract is settled, for whatever reason, then recent retirees from that union will receive no back pay and their pension benefit will remain the same.

In this environment it would be prudent to postpone retirement until after the contract is settled. I know that is not always possible for some workers. In addition some unions have notorious reputations for buckling under during negotiations and creating havoc for other unions. Recent retirees should stay in close contact with their unions and try to protect their interests in the negotiations.

I wish I was optimistic about these pending contracts. There should be an effective binding arbitration mechanism to prevent this inevitable stalemate. Now the stakes have become too high.