Friday, December 5, 2014

TRS - Permanent Handicap - TDA Transfer

Last year I wrote about a persistent negative cash flow at the NYC Teachers Retirement System (TRS).

Just recently someone pointed out to me the impact of something I vaguely knew about but not really. Every year TRS pulls money out of the pension fund and transfers it to the TDA plan that it runs separately from the pension plan. The TDA plan is a defined contribution plan, a 403(b) plan in IRS speak. Information about this transfer is buried in the TRS annual CAFR. The city, however, has never identified the transfer in its annual CAFR. That is until FY-2014.

This is why TRS has had a negative cash flow for the last 15 years. In the last eight years (2007-2014) TRS has paid $33.3B in benefits but $6.8B went to the TDA plan and not pension benefits. The employers' contributions for the 2007-2014 period were only $19.2B. This is a big problem. It is never discussed publicly. I have no idea how Bob North, the TRS actuary, values this liability for the TRS pension fund. This is a huge leak in the funding pipeline for the TRS pension plan.

If you look at the table below it appears that North is reporting a funding level for TRS based only on the liability based on the pension benefits paid and ignores the TDA transfer.

Funding Status for TRS and NYCERS for FY-2013

System Actuarial Assets Actuarial Liabilities Funding Level MembersPensionersPension Benefits Paid TDA Transfer
NYCERS $42.4B $65.3B 65.0%212,347137,987$3.9B $0.0B
TRS $33.6B $57.7B 58.2% 132,01776,539$3.6B $1.1B

TRS Benefit Payout Since 2007

Fiscal YearEmployer ContributiondsAll Benefits PaidPensions PaidTDA SkimOther Benefits PaidPension Paid % TDA Skim %Other Benefits %
2005$1.23B $3.13B ******
2006$1.32B $3.34B ******
2007$1.60B $3.58B$2.89B$0.55B$0.14B80.7%15.4%4.0%
2008$1.92B $3.78B$3.02B$0.65B$0.11B79.9%17.2%3.0%
2009$2.22B $3.78B$2.92B$0.77B$0.10B77.2%20.4%2.6%
2010$2.48B $4.12B$3.20B$0.82B$0.10B77.7%19.9%2.4%
2011$2.47B $4.33B$3.38B$0.85B$0.10B78.1%19.6%2.2%
2012$2.67B $4.49B$3.44B$0.95B$0.10B76.6%21.2%2.3%
2013$2.86B $4.67B$3.54B$1.05B$0.08B75.8%22.5%1.7%
2014$3.00B $4.58B$3.82B$1.15Bnr76.9%23.1%*
2007-2014$19.22B $33.72B$26.21B$6.78B$0.73B***

Monday, November 17, 2014

Investment Fees for NYC Pension Funds since 2000 - Good Work If You Can Get It

The Comptroller just came out with the city's financial statement on Halloween. One of the interesting items in the report is the amount paid in investment fees for the five city pension funds. FY-2015 continued the insane upward trend as you can see from the list below. The grand total for the last 15 years is $4.0B. Yes, that is billion. All for 3.6% rate of return, maybe.

  1. 2014 - $530.2M
  2. 2013 - $472.5M
  3. 2012 - $370.3M
  4. 2011 - $395.7M
  5. 2010 - $426.8M
  6. 2009 - $339.3M
  7. 2008 - $310.2M
  8. 2007 - $262.0M
  9. 2006 - $192.7M
  10. 2005 - $158.2M
  11. 2004 - $131.6M
  12. 2003 - $ 96.7M
  13. 2002 - $101.9M
  14. 2001 - $100.0M
  15. 2000 - $100.0M

Friday, October 3, 2014

NYC Law Department

I have previously written about the inherent conflict of interest in the NYC Law Department. You would think that the lawyers at the Law Department represent the citizens of New York City and their best interests. You would also think that full disclosure is in the best interest of the citizens on New York City.

On September 21, 2014 NY Times published an article about a scandal at the NYC Department of Corrections concerning a falsification of official records in 2011. In 2012, when the fraud was discovered by DOC investigators, the Corrections Commissioner chose to radically alter the investigatos' report by erasing all damaging information relating to the roles of the two senior DOC managers involved. She had previously promoted those managers.

The following is a quote from that article:

The audit’s authors said that the testimony of both Mr. Clemons and Mr. Gumusdere pointed to a “complete abdication” of their obligations as managers, recommending that both be demoted “based on their admitted lack of attention to critical duties and responsibilities of jail management.”

Then Ms. Schriro intervened. After consulting with the department’s legal counsel, and being told she had the authority to alter the report, she ordered the reference to demotion removed, Ms. Schriro said. She also directed the investigative division to remove large portions of the most critical material involving Mr. Clemons and Mr. Gumusdere, including the statement that “it defies logic to think that they could have concluded that the number of fights RNDC reported during these months was accurate.”


In February 2013, as part of their civil rights investigation, the federal authorities made a detailed request to the city for documents related to the use of force by guards on teenage inmates and violence between the adolescents. The request included “all” documents related to audits and reviews to assess the accuracy and integrity of reporting on such incidents, including, but not limited to, “working papers and any other documents reflecting findings or recommendations,” according to one person who was told of the request.

A city Law Department official said on Friday that the first version of the report was not produced in response to the original federal requests because it was treated as a draft and seen as privileged. Last week, the United States attorney’s office specifically requested it from the city, and the current corporation counsel, Zachary W. Carter, decided that it should be turned over — and it was, the official said.

It is clear that the Law Department under the Bloomberg administration withheld significant evidence from federal authorities who were investigating serious allegations about activities at the NYC Department of Corrections during the Bloomberg administration. The reason given, that the original audit with specific supporting details was a draft and privileged, is what you might expect from a lawyer in private practice. The citizens of New York City, however, are entitled to have their attorneys represent their best interests and not the Commissioner of Corrections or city hall.

The current Corporation Counsel, a former US Attorney in the Eastern District, has now turned over the "privileged" report to the federal authorities.

As a general principal the public has a right to see everything that our government does as outlined in our freedom of information laws. The attorney at the Department of Corrections who signed off on the altered report and the lawyers at the Law Department who labeled the report as privileged should be fired for incorrect legal decisions. And we all know that what they did should be considered illegal.

Friday, September 12, 2014

Recycled Garbage

In June of this year the executive director of NYCERS, Diane D’Alessandro, appointed Diane Bratcher as deputy director of communications for the agency. The position had become vacant when the former director had left to work in the mayor’s office. His annual salary was $150K. I strongly suspect there was no posting for this position.

At the time of this appointment, Bratcher had been working for eleven months as an associate staff analyst at HRA. The hiring salary for new ASA’s is $59,536.

As background, Bratcher graduated from college in 1974. For the next eight years she seems to have been unemployed. In 1982 Bratcher started working for the Interfaith Center for Corporate Responsibility. She worked there until May, 2002. A month later she was hired by the NYC Finance Commissioner, Martha Stack, as an assistant with a salary of $95K.

Three months later in September, Stark was appointed by Mayor Bloomberg as as the chair of the NYCERS Board of Trustees. At that point Stark made Bratcher the director of the pension unit at Finance, replacing another woman who was a veteran city attorney who had worked for many years at both the Finance pension unit and the NYC Law Department.

For the next seven years Bratcher functioned as a submissive assistant to Stark. I make this comment based on my observations of their interactions at NYCERS board meetings from 2002 to 2005.

It has been established by the NYC Department of Investigation that Stark was slicing through numerous female employees during her seven years as the Finance Commissioner among other transgressions. According to several Finance employees Stark’s escapades were common knowledge within the agency. It is reasonable to conclude that Bratcher was also aware of this sexual activity by her boss, Stark.

In March 2005, Stark as chair of the NYCERS Board of Trustees fired me as the NYCERS executive director because I was involved with a woman on the NYCERS staff. We have since been married. My wife, fortunately or unfortunately, still works at NYCERS.

In October 2005, Stark and the other trustees appointed D’Alessandro as the new NYCERS executive director. Bratcher was actively involved with this appointment.

In April 2009, Bloomberg accepted Stark’s resignation and ordered an investigation into her activity at Finance including her predatory actions with respect to female employees.

All three women, D’Alessandro, Stark, and Bratcher, are long time politically active gay women.

In January 2011, Bratcher left Finance. Her salary at that time was $125,847. Assuming she had joined NYCERS, she was eligible for an annual pension of approximately $18,200 but not health insurance.

In May 2012, Bratcher started working at the UN Principles for Responsible Investment. She lasted there until April 2013. She started working at HRA in July 2013. I strongly suspect that she rejoined NYCERS because of opportunity to significantly increase her pension and gain health insurance coverage in retirement.

Assuming that D’Alessandro gave Bratcher the salary of the former deputy director of $150,000, a significant increase over the ASA salary, Bratcher will be able to increase her future pension by at least an additional $2,100 for every year she works at NYCERS. She will also be eligible for retirement health insurance by the end of this year.

In 2006 I observed Bratcher being deposed during a libel suit I filed against Stark and the NYCERS Board of Trustees. It is common practice for people to lie when testifying during a deposition. They conclude that there is no evidence to contradict what they say. Usually they are correct. But it is truly punishing when evidence is produced during the testimony that proves that the person being deposed has just lied.

The following is a portion of Bratcher’s December 13, 2006 deposition:

Q. Your testimony is Murphy tells the trustees that the DOI report is inaccurate. He had the relationship with Browne, but the DOI report is inaccurate, right?

A. Right.

Q. He wants an opportunity to correct the DOI report. You're saying he says nonetheless, he is going to retire?

A. Yes.

Q. Unconditionally?

A. Unconditionally.

Q. He is just going to retire?

A. Yes.

MS. CARROLL: Mark this document as Bratcher Exhibit 5. It is numbered N 0040. (Bratcher Exhibit 5, N 0040, marked for identification, as of this date.)

Q. After Murphy made his statement to the board, he left the room and then there was executive session again?

A. Yes.

Q. It is a fact, is it not, that because Murphy had not agreed to retire, that the board voted that Murphy had to go; isn't that what happened?

A. No .

Q. Would you look at N 00040. Do you see the second paragraph?

A. Yes.

Q. This is from you to Llembellis. Who is Llembellis?

A. Llembellis at that time was counsel to The Bronx borough president and his representative to the NYCERS board of trustees.

Q. You prepared this E-mail and sent it to Llembellis telling her what occurred at the NYCERS meeting?

A. Yes.

Q. The second sentence of the second paragraph, everybody else voted that John had to go and empowered Martha to negotiate that with him. You wrote that?

A. Yes.

Q. You wrote it on March 11, 2005, the day after the meeting?

A. Yes.

Q. It was accurate when you wrote it, wasn't it?

A. Not accurate.

Q. Are you in the habit of writing inaccurate memos, Ms. Bratcher?

MR. MARKS: Objection to the form.

A. I am not in the habit of –

Q. No, you're not. In fact, you're a very capable assistant, aren't you?

A. I think so.

Q. When you do things, they are very carefully crafted, like your analytical summary, aren't they?

MR. MARKS: Objection to the form.

A. Sometimes, usually.

Q. One could think this document, Stark 2, was done by a lawyer it is so direct and on the money as to the issues, right?

MR. MARKS: Are you trying to pay her a nice compliment or ask her a question?

Q. This statement when you wrote it was true and accurate because you don't write inaccurate and untrue statements, do you, Ms. Bratcher?

A. It was inaccurate. No vote was taken.

Q. Is there any reason why you would mis-inform Ms. Llembellis as to what occurred at the trustee meeting?

MR. MARKS: Objection to the form.

A. I didn't mis-inform her.

Q. I am asking you, is there any reason why you would mis-inform Ms. Llembellis and tell her that everybody else voted that John had to go and empowered Martha to negotiate that with him; is there any reason why?

A. No reason.

Q. The Earl who abstains on the decision, who is that?

A. Earl Brown, E A R L.

Q. By abstaining, that means he didn't vote?

A. What happened -- you want me to answer what happened?

Q. It says here, Earl ended up abstaining on the decision. My question to you is, Earl was a trustee at the meeting?

A. Yes.

Q. That is what you're intending to advise Llembellis about?

A. Right.


Tuesday, May 13, 2014

Emerging Manger Circus and the NYC Pension Funds

Three weeks ago Scott Stringer issued a press release saying that he was going to recommend that the NYC pensions funds dump another $1B into the emerging managers circus.

For the record in FY-2013 NYCERS had $818.25M invested in US equities run by emerging managers. NYCERS paid them $4.41M in FY-2013. That is 50 basis points (50 BP's).

During the same year NYCERS had $4.39B invested in a Russell 3000 index fund run by Blackrock. NYCERS paid them $161,565 in FY-2013. That is .4 basis points (.4 BP's).

The emerging managers had the following returns:

  1. one year: 22.63%
  2. three years: 18.34%
  3. five years : 6.84%

Blackrock had the following returns:

  1. one year: 21.37%
  2. three years: 18.58%
  3. five years : 7.24%

I don't think I have to say more except that the trustees in their infinite wisdom terminated Blackrock in FY-2014. You can't make this stuff up.

Thursday, February 20, 2014

Requesting Info for 10 Year Cutoff for Tier 4 Members

One of my original postings in 2009 was about the cutoff of Tier 4 members 3% required contributions after earning ten years of credited service. This benefit was granted by Chapter 110 of the Laws of 2000.

Operationally, this statutory change required NYCERS to monitor the accumulation of service of Tier 4 members who join NYCERS after 2000. Because of Tier 6, members who join after April 1, 2012 are no longer entitled to the 10 year cutoff. New members, who transfer or restore prior memberships with start dates before the April 1, 2012 date, still qualify.

To support this service tracking requirement, I had the IT division develop a Tier 4 required contribution system to augment the service history system that was already in place. You can see the service history file on the NYCERS web site when you sign on to your account.

The required contribution system was developed after the web site was implemented in 2003. Unfortunately, I was not able to migrate it to the web site before I was terminated in March of 2005. Nine years later and it is still not on the web site.

In light of this, I recommend that all Tier 4 members request a copy of their required contribution workup so that they aware of any shortages in their account. It is especially relevant to members who have not reached their 10 year cutoff and are 1) purchasing military or prior service or 2) transferring or restoring other memberships. The workup will allow them to see whether they have crossed the 10 year threshold or how close they are to it. They will then be able to know when the 3% contributions should stop.

In addition to the required contribution workup, all members should request a copy of their annuity account history. This is another valuable file that should be on the NYCERS web site but has never made it there. It outlines by year the deposits, withdrawals, interest earned, and closing balances for each member's contribution account.

Monday, January 27, 2014

How Asset Allocation Can Have a Huge Impact on Returns

I recently posted a chart detailing the investment performance at NYCERS over the last 14 years. I contrasted NYCER's actual returns with the market returns for a simple index(stocks)/core(bonds) portfolio. In both cases the asset allocation was an "aggressive" 70% for stocks and a 30% for bonds.

The comparision showed a large shortfall between actual and market strategies. NYCERS actual asset value as of 6/30/2013 was $47.2B. The market value was $58.2B.

Since then I have done some further analysis using different asset allocations. The results were truly startling. Higher stock allocations are assumed to be riskier but offer higher potential returns. Stated another way an 50%(stock)/50%(bond) allocation should have produced lower returns but less volatility. The numbers tell another story all together.

In a snap shot, the list below shows the 6/30/2013 closing balances for the market index/core strategy over the last 14 years using different asset allocations:

  • 80%/20% : $53.2B
  • 70%/30% : $58.2B
  • 60%/40% : $62.9B
  • 50%/50% : $67.6B
  • 40%/60% : $72.3B
  • 30%/70% : $76.9B
  • 20%/80% : $81.5B

This experience is definitely tied into the last 14 years. Experts might question whether my simulations are refined enough. It is, however, clear to me that traditional thinking about calculating the efficient frontier curve is seriously flawed.

Over time NYCERS has scaled up its stock allocation. In 1985 it was at 30%. By 1990 it was at 50%. By 1995, NYCERS had shifted up to a 70%/30% position trying to catch the updraft of 1990's stock market. Since then NYCERS has never changed from this general allocation.

Not only have the trustees made very bad specific investment decisions over the last 14 years, they seriously misjudged the overall market.

No trustee could have been expected to push for 30%/70% asset allocation in 2002 but a 50%/50% position was well within the accepted range of prudent behavior. It would also have been much more successful. I light of the national pension crisis, we need to be more focused on the part that pension trustees have directly played in that crisis.

Blaming the benefit structure alone will miss the full extent of the disease. There are some who want the patient to die but we, as a society and a successful economy, will be far worse off without a healthy pension system in the United States.

This is a more detailed chart of NYCERS's actual June 30 closing balances and the simulated closing balances for the 70%/30% vs 50%/50% allocations over the last 14 years.

NYCERS - Actual Returns and Index/Core Returns (70%/30% vs. 50%/50%) from 2000 to 2013

Fiscal Year Actual Close Balance Actual Rate of Return Index/Core Return (70%/30%) Index/Core Return (50%/50%) Index/Core Close Balance (70%/30%) Index/Core Close Balance (50%/50%)
1999 $41.9B % % % $ $
2000 $42.8B 3.14% 5.52% 5.22% $43.8B $43.7B
2001 $38.1B -11.86% -7.58% -2.09% $40.0B $42.2B
2002 $32.8B -11.44% -10.82% -5.25% $34.8B $39.1B
2003 $31.5B 0.62% 2.36% 4.96% $34.0B $39.4B
2004 $34.2B 12.71% 12.08% 8.75% $36.8B $41.6B
2005 $35.5B 6.30% 5.56% 6.31% $38.1B $43.4B
2006 $37.3B 7.10% 4.23% 2.63% $39.0B $43.8B
2007 $42.5B 13.03% 14.75% 12.34% $45.2B $49.7B
2008 $39.7B -7.32% -8.10% -3.59% $41.9B $48.3B
2009 $31.9B -20.46% -17.50% -10.39% $35.0B $43.7B
2010 $35.4B 10.68% 11.63% 11.30% $39.3B $48.9B
2011 $42,4B 19.39% 20.94% 16.14% $47.8B $57.0B
2012 $42.7B -1.14% 5.01% 6.25% $51.0B $61.4B
2013 $47.2B 8.81% 12.26% 8.49% $58.2B $67.6B

Wednesday, January 15, 2014

It's not just New York City!

It is not just the NYC pension funds that have lost their way with alternative investments. It has spread throughout the country as you can see from this story about North Carolina.

Open Meetings Law - Advisory Opinion - 2005

Listed below is an advisory opinion letter from the NYS Department of State to the Wall Street Journal concerning access to the five NYC pension board meetings and to certain documents of the pension funds.

State of New York
Department of State
Committee on Open Government

One Commerce Plaza
99 Washington Ave.
Albany, New York 12231
(518) 474-2518
Fax (518) 474-1927

January 31, 2005

The staff of the Committee on Open Government is authorized to issue advisory opinions. The ensuing staff advisory opinion is based solely upon the facts presented in your correspondence.


I have received your letter in which you questioned the propriety of certain executive sessions held by the boards of New York City’s five pension funds, as well as denials of access to their records.

According to your letter, five separate pension funds have been established for categories of City employees, their holdings are valued at approximately 83 billion dollars, and they are known collectively as the New York City Retirement System. Each board is independent, but each relies on the office of the City Comptroller for oversight of asset management and staff support.

Having attended meetings of the boards of the three largest funds on various occasions, you indicated that reviews of a fund’s investment performance generally occur in public and that you are given a copy of a "flash report", a one page summary. Often, however, discussions involve "quarterly reports or particular investment classes", and you are excluded from them. Executive sessions have also been held to discuss "a 12 month plan", "investment advisor updates", quarterly reports on "private equity" and real estate, "investment policy", emerging markets, compliance with ethics laws, a selection process for investment counsel, a "post-trade" analysis, and a status report on "large cap growth."

Additionally, in response to a request for a report on the performance of a particular fund, you were told that the report was "privileged." A request for a copy of an investment policy adopted during an executive session was denied, and you were told that you should obtain it from the Comptroller’s office. In another instance, after the Board provided authority to enter negotiations with two private equity consultants, your request for their names was rejected based on a contention that disclosure "could impair the ability of the City Comptroller’s office to negotiate terms of [a] deal and actually place the investment."

In this regard, I offer the following comments.

First, the Open Meetings Law is based on a presumption of openness. Stated differently, meetings of public bodies must be conducted open to the public, except to the extent that an executive session may properly be conducted in accordance with paragraphs (a) through (h) of §105(1). Consequently, a public body, such as the boards that are the subject of your correspondence, cannot enter into an executive session to discuss the subjects of their choice. From my perspective, the grounds for entry into executive session are based on the need to avoid some sort of harm that would arise by means of public discussion, and that is so with respect to the basis for entry into executive session to which you referred and which is pertinent to several of the matters that you described.

Specifically, §105(1)(h) of the Open Meetings Law permits a public body to enter into executive session to discuss:
"the proposed acquisition, sale or lease of real property or the proposed acquisition of securities, or sale or exchange of securities held by such public body, but only when publicity would substantially affect the value thereof."

In my opinion, the language quoted above, like the other grounds for entry into executive session, is based on the principle that public business must be discussed in public unless public discussion would in some way be damaging, either to an individual, for example, a business enterprise or to a government in terms of its capacity to perform its functions appropriately and in the best interest of the public. It is clear that §105(1)(h) does not permit public bodies to conduct executive sessions to discuss all matters that may relate to the acquisition, sale or exchange of securities; only to the extent that publicity would "substantially affect the value of the property" can that provision validly be asserted.

When the boards at issue focus on a particular enterprise and consider whether to purchase or sell securities associated with that enterprise, because they purchase and sell securities involving a great deal of money, public discussion could have a significant effect on the value of the securities. If the effect of a public discussion would result in a substantial change in the price of securities considered for acquisition or sale, I believe that an executive session could properly be held. In those circumstances, a board would be focusing on a particular security or securities, and its discussion would involve prospective action. From my perspective, §105(1)(h) may be invoked in instances in which the discussion focuses on particular purchases or sales yet to be made. Discussions regarding past purchases or sales would not appear to "substantially affect" the value of securities. As you are well aware, there are circumstances too numerous to count or identify that deal with the strengths and weaknesses, both actual and predicted, of entities that are the subjects of the purchase and sale of securities. That being so, unless a discussion by a board involves particular entities, as opposed to sectors, it is doubtful in my view that it can be justifiably be contended that publicity would "substantially" affect the value of securities

Moreover, the five funds, although large, are among thousands of institutional purchasers and sellers of securities. That being so, discussions by the boards of the funds involving their policy, pertaining to certain sectors, i.e., emerging markets or large cap companies, updates regarding previous transactions, or "post-trade" analyses would appear to have perhaps minimal or perhaps no effect on the value of securities. If that is so, §105(1)(h), in my view, could not be asserted as a basis for consideration in executive session.

I point out that a different ground for entry into executive session might apply in the context of the functions of the boards. Section 105(1)(f) authorizes public bodies to enter into executive session to discuss:
"the medical, financial, credit or employment history of a particular person or corporation, or matters leading to the appointment, employment, promotion, demotion, discipline, suspension, dismissal or removal of a particular person or corporation."

Insofar as a board discusses the "financial history" of a particular corporation, for example, I believe that §105(1)(f) could properly be cited as a basis for conducting an executive session.

With respect to your efforts in obtaining records, the Freedom of Information Law is pertinent. In brief, that statute is based upon a presumption of access. Stated differently, all records of an agency are available, except to the extent that records or portions thereof fall within one or more grounds for denial appearing in §87(2)(a) through (i) of the Law. Further, the Court of Appeals, the state’s highest court, confirmed its general view of the intent of the Freedom of Information Law in Gould v. New York City Police Department [87 NY 2d 267 (1996)], stating that:

"To ensure maximum access to government records, the 'exemptions are to be narrowly construed, with the burden resting on the agency to demonstrate that the requested material indeed qualifies for exemption' (Matter of Hanig v. State of New York Dept. of Motor Vehicles, 79 N.Y.2d 106, 109, 580 N.Y.S.2d 715, 588 N.E.2d 750 see, Public Officers Law § 89[4][b]). As this Court has stated, '[o]nly where the material requested falls squarely within the ambit of one of these statutory exemptions may disclosure be withheld' (Matter of Fink v. Lefkowitz, 47 N.Y.2d, 567, 571, 419 N.Y.S.2d 467, 393 N.E.2d 463)" (id., 275).

There is nothing in the Freedom of Information Law that authorizes a person or agency to claim, promise or engage in an agreement conferring confidentiality or a "privilege" absent a statutory authority to do so. The Court of Appeals has held that a request for, a claim or a promise of confidentiality is all but meaningless; unless one or more of the grounds for denial appearing in the Freedom of Information Law may appropriately be asserted, the record sought must be made available. In Washington Post v. Insurance Department [61 NY2d 557 (1984)], the controversy involved a claim of confidentiality with respect to records prepared by corporate boards furnished voluntarily to a state agency. The Court of Appeals reversed a finding that the documents were not "records" subject to the Freedom of Information Law, thereby rejecting a claim that the documents "were the private property of the intervenors, voluntarily put in the respondents' 'custody' for convenience under a promise of confidentiality" (id., 564). Moreover, it was determined that:
"Respondent’s long-standing promise of confidentiality to the intervenors is irrelevant to whether the requested documents fit within the Legislature’s definition of ‘records’ under FOIL. The definition does not exclude or make any reference to information labeled as ‘confidential’ by the agency; confidentiality is relevant only when determining whether the record or a portion of it is exempt (see Matter of John P. v Whalen, 54 NY2d 89, 96; Matter of Fink v Lefkowitz, 47 NY2d 567, 571-572, supra; Church of Scientology v State of New York, 61 AD2d 942, 942-943, affd 46 NY2d 906; Matter of Belth v Insurance Dept., 95 Misc 2d 18, 19-20). Nor is it relevant that the documents originated outside the government...Such a factor is not mentioned or implied in the statutory definition of records or in the statement of purpose..." (id., 565-566).

The Open Meetings and Freedom of Information Laws frequently relate to one another, as in the case of matters involving access to minutes of executive sessions. The Open Meetings Law contains direction concerning minutes of meetings and provides what might be viewed as minimum requirements pertaining to their contents. Specifically, §106 states that:

"1. Minutes shall be taken at all open meetings of a public body which shall consist of a record or summary of all motions, proposals, resolutions and any other matter formally voted upon and the vote thereon.

2. Minutes shall be taken at executive sessions of any action that is taken by formal vote which shall consist of a record or summary of the final determination of such action, and the date and vote thereon; provided, however, that such summary need not include any matter which is not required to be made public by the freedom of information law as added by article six of this chapter.

3. Minutes of meetings of all public bodies shall be available to the public in accordance with the provisions of the freedom of information law within two weeks from the date of such meetings except that minutes taken pursuant to subdivision two hereof shall be available to the public within one week from the date of the executive session."

In view of the foregoing, as a general rule, a public body may take action during a properly convened executive session [see Open Meetings Law, §105(1)]. If action is taken during an executive session, minutes reflective of the action, the date and the vote must generally be recorded in minutes pursuant to §106(2) of the Law. If no action is taken, there is no requirement that minutes of the executive session be prepared.

It is noted that minutes of executive sessions need not include information that may be withheld under the Freedom of Information Law. From my perspective, when a public body makes a final determination during an executive session, that determination will, in most instances, be public. For example, although a discussion to hire or fire a particular employee could clearly be discussed during an executive session [see Open Meetings Law, §105(1)(f), a determination to hire or fire that person would be recorded in minutes and would be available to the public under the Freedom of Information Law. On other hand, if a public body votes to initiate a disciplinary proceeding against a public employee, minutes reflective of its action would not have include reference to or identify the person, for the Freedom of Information Law authorizes an agency to withhold records to the extent that disclosure would result in an unwarranted personal privacy [see Freedom of Information Law, §87(2)(b)].

As indicated earlier, you referred to an executive session during which a board conferred authority to enter into negotiations with certain private equity consultants. When you requested the names of the consulting firms, the request was denied on the ground that disclosure would "impair the ability" of the City Comptroller to negotiate in an optimal manner. The provision in the Freedom of Information Law upon which the board appears to have relied, §87(2)(c), permits an agency to deny access to records to the extent that disclosure "would impair present or imminent contract awards or collective bargaining negotiations." The key word in that provision in my opinion is "impair", and the question under that provision involves whether or the extent to which disclosure would "impair" the process by diminishing the ability of the government to reach an optimal agreement on behalf of the taxpayers. That a contract has not been signed or ratified, in my view, is not determinative of rights of access or, conversely, an agency's ability to deny access to records. Rather, I believe that consideration of the effects of disclosure is the primary factor in determining the extent to which §87(2)(c) may justifiably be asserted.

As I understand its application, §87(2)(c) generally encompasses situations in which an agency or a party to negotiations maintains records that have not been made available to others. For example, if an agency seeking bids or proposals has received a number of bids, but the deadline for their submission has not been reached, premature disclosure for the bids to another possible submitter might provide that person or firm with an unfair advantage vis a vis those who already submitted bids. Further, disclosure of the identities of bidders or the number of bidders might enable another potential bidder to tailor his bid in a manner that provides him with an unfair advantage in the bidding process. In such a situation, harm or "impairment" would likely be the result, and the records could justifiably be denied. However, after the deadline for submission of bids or proposals are available after a contract has been awarded, and that, in view of the requirements of the Freedom of Information Law, "the successful bidder had no reasonable expectation of not having its bid open to the public" [Contracting Plumbers Cooperative Restoration Corp. v. Ameruso, 105 Misc. 2d 951, 430 NYS 2d 196, 198 (1980)]. Similarly, if an agency is involved in collective bargaining negotiations with a public employee union, and the union requests records reflective of the agency's strategy, the items that it considers to be important or otherwise, its estimates and projections, it is likely that disclosure to the union would place the agency at an unfair disadvantage at the bargaining table and, therefore, that disclosure would "impair" negotiating the process.

I point out that the Court of Appeals sustained the assertion of §87(2)(c) in a case that did not clearly involve "contract awards" or collective bargaining negotiations. In Murray v. Troy Urban Renewal Agency [56 NY2d 888 (1982)], the issue pertained to real property transactions where appraisals in possession of an agency were requested prior to the consummation of a transaction. Because premature disclosure would have enabled the public to know the prices the agency sought, thereby potentially precluding the agency from receiving optimal prices, the agency's denial was upheld [see Murray v. Troy Urban Renewal Agency, 56 NY 2d 888 (1982)].

If there is no possibility that other consulting firms may be involved in the negotiations, it is difficult to envision how disclosure of the names of the two firms would "impair" the ability of a fund to reach an optimal agreement. This is not to suggest that other records involved in negotiations might not justifiably be withheld, but rather that the names of the two firms with which authority has been conferred to negotiate should be disclosed, unless there is justification for claiming that disclosure would impair a fund’s ability to reach an optimal agreement on behalf of its members.

In an effort to enhance understanding of open government laws, copies of this opinion will be forwarded to the boards to which you referred.

I hope that I have been of assistance.

Robert J. Freeman
Executive Director


cc: Board of Education
Fire Department
NYC Employees
Police Pension Fund
Teachers’ Retirement Board


Friday, January 10, 2014

Those Pesky Emails.

We all saw yesterday how emails can trip up political figures. How did Gov. Christie miss that email but the Bergen record was able to get it?

It reminds me how the Department of Investigation was unable to get copies of NYCERS emails back in 2004. Of course, Kin Mak had no trouble finding them and stashing them away at his house in the Poconos. Maybe the Bergen Record hired Kin Mak.

2005 - The Year the Door Closed - Harassing Veterans

The following is a write up concerning veterans benefits at NYCERS. It highlights how NYCERS has changed its treatment of members since 2005.


In 2000 the legislature passed a law allowing members of all NYS public pension plans to purchase military service (Chapter 548 of the Laws of 2000, eff. October 19, 2000, deemed eff. December 21, 1998). This law created Section 1000 of the NYS RSSL. The text of this section is listed below. I was the executive director of NYCERS at the time.

When enacted, the law allowed members who had served in the military during times of war to purchase up to three years of service credit in their NYS public pension plan. The cost was 3% of the 12 months earnings immediately prior to the date of the filing of their purchase application times the number years of military service being purchased.

As part of the implementation process NYCERS started accepting applications from all members who qualified. There was an additional requirement outlined in subsection 3 that the service would not be creditable until the member had been credited with five years of other pension service. At the time, NYCERS did not restrict applications because of this five year service requirement because the application subsections (1 & 2) did not impose this restriction.

Since 2005, the year I was terminated by the NYCERS Board of Trustees, NYCERS has imposed a five credited service requirement upon the acceptance of application under Section 1000. The effect of this requirement is to generally raise the cost to the member for purchasing military service rendered during time of war. This cost increase is even higher for Tier 6 members who must pay 6% rather than the original 3%.

Needless to say in my opinion NYCERS does not have the authority to impose this requirement on these members who have served their country in times of war. Based on Doctors Council, 71 N.Y.2d 669 the trustees do not have the authority to limit benefits without clear legislative direction. There is no legislative time limit on the filing of applications under Section 1000.

Discussion at the Board Meetings

Listed just below is the conversation from two NYCERS board meetings in 2011. The trustee representative for Local 100 of the TWU raises the issue of changing the NYCERS requirement that a member have five years of service credit before he/she can apply to purchase military service.

The TWU rep correctly states that the law does not impose a five year service requirement on the application filing process. He further states that he has been told that the Law Department has directed NYCERS , via email, that they have to impose this requirement. He also effectively counters the operational objections that had been raised by NYCERS staff.

From 2000 to 2005 when I was executive director, there was no such filing requirement. The law was totally clear to me. If the Law Department had sent me such an email, I would have asked them to send a formal memo. I would have also told them that there would be a response from me notifying them that in my professional opinion that the law did not impose a five year requirement.

I would, however, have followed their advice but there would have been a legal record of my opposition. The Law Department hates that type of documentation. In reality it makes them back off writing garbage.

In the comments from the DC-37 trustee rep there is no support for the TWU position and only a deference to the Law Department. In particular, her reference to her "fiduciary hat" is laughable in light of the investment disasters for which that the trustees are responsible.

In the current executive director’s comments she contradicts what I said about how these applications were processed from 2000 to 2005. She claims that the five year requirement had been in effect for 11 years back to 2000. Since she was not at NYCERS during that time, she is not in position to personally know what happened during that time. Any information she gets from the NYCERS Legal Division is totally compromised by incompetence and lack of honesty.

Also from her comments, it appears to me that she was aggravated by the TWU’s rep’s initial inquiry about this issue and his persistence in following up on it.

A little background on the people involved. The TWU rep, Mr. Rosenfeld, worked for NYCERS for many years. I don’t have a high regard for him. In this case, however, he is totally correct in his position. I suspect he and Ms. D’Alessandro have had contact with each other over the years especially when she was the third string alternate for DC-37 on the Board of Trustees and he was working at NYCERS.

Toward the end of his comments Mr. Rosenfeld in support of his position claims that the attorney at the Law Department, who wrote the significant email, said to him "Norman, you are absolutely right. It's not in the law, but there is enough language we can hang our hat on." I’m afraid that quote says it all about what is happening to NYCERS members since 2005. If there is any way to screw the members, do it.

At the end of the July minutes, the Staten Island BP rep very correctly asked the Law Department for a formal legal memo on the issue to be presented at the next board meeting.

Guess what? You can see from the September minutes of the next board meeting that the TWU rep dropped his request and no formal memo was ever produced by the Law Department. Too bad for the veterans but the city saved a few dollars. Remember that NYCERS paid $183.3M in investment fees last year.

Why did TWU drop its request? Maybe you should read a posting I wrote in 2009 about a change in death benefits at the Transit Authority.

Note: The date of the last regular NYCERS meeting minutes posted on the Comptroller’s pension online web site is October 13, 2011. It was obviously too much transparency for NYCERS to handle.

July 14, 2011 Board Meeting

MS. D'ALESSANDRO (executive director):

Resolution Number 37.

The next item on the agenda is the proposed resolution regarding military service.

CHAIRPERSON WOLPERT (Chair, appointed by mayor):

Mr. Rosenfeld, I believe you wanted to speak about this?

MR. ROSENFELD (TWU, labor trustee):

Yes, Madam Chair.

TWU is proposing a change in the way NYCERS is processing military buybacks. Article 20 of the Social Security law basically is like a three-page law, it's very short. It basically says if you serve one day during a time of conflict and the conflicts are listed in the law, you can buy up to three years of military time. The law goes on to say that -- but you don't get credit until you have five years of service, excluding the military purchase.

Nowhere in the law does it say that you have to wait five years to pay for it. The law does prescribe how a veteran pays for it. It's 3 percent of the 12 months earned preceding NYCERS receiving the application multiplied by the number of years you're buying back. So if a person is making $80,000 back from when he submitted his application, $80,000 times 3 percent, $2400 times the number of years he is purchasing.

Now, NYCERS has been told, I understand, by the Law Department, that because of the wording in the law, that they make the veteran wait five years to pay for it. Therefore, it's costing the veteran more money. I've had some members of Local 100 come to me and complain about it, that they put into the military and they only had like two or three years on the job and they got a letter from NYCERS that they can't pay for them until they have the five years, thereby costing the veteran more money.

There's nothing in the law -- you've seen the proposal, I think it was e-mailed to everyone. There's nothing in the law that specifically states that you have to wait five years to pay for it, just an interpretation. Based on the Richter case that the Corp Counsel attorney advised us in May, any trustee can make a proposal to the board to change an operational procedure.

That's what TWU Local 100 is attempting to do. I think it would be a big win for all the principals involved, and I think it would be a big win for NYCERS in the forefront of all the other Retirement Systems who are processing the same way, they're making the veterans wait five years and thereby costing the veteran more money.

Who in this room wants to make a veteran pay more money for the military time? I know there are procedural things that NYCERS has to do and we need to discuss it. I understand some of the trustees, my fellow trustees, might want to think about it, but I'll leave it to the Madam Chair to decide what we're going to do with this.

Again, there is nothing in the law that says the veteran must wait five years to pay for it. All it says is you don't get credit till you have five years of credit, excluding the military purchase. I've been told that it could be a burden to NYCERS. What happens if the person doesn't make the five years?

Now NYCERS has to refund the money. But if the person doesn't make the five years, he's going to get a refund anyway if he requests it, thereby terminating his NYCERS membership and most of the time people hang in there, maybe hoping they'll get another city job and come back. Why would a person pay five years -- pay for his military and not plan on making a career?

So in my opinion, I don't see that as the problem for NYCERS, they'd have to process the refund anyway if the person wants to get a return of his accumulated deductions, they just add the military money which is in a separate account as well. That's my proposal.


Thank you, Mr. Rosenfeld. I have looked into this initially in addition to the Law Department's opinion that the NYCERS procedure is appropriate. I also understand that New York State processes requests in the same way, so that's one thing for the board to consider in looking at this resolution. I don't know if any other members of the board want to discuss or if they want to just take this under consideration and perhaps put it on the agenda for next month?


I'd be happy to take any questions from any trustee about it, if you have any questions.

MS. O'CONNELL (DC-37, labor trustee):

I think I do applaud TWU for taking the bull by the horns in trying to look at things with fresh eyes, I certainly applaud that.

My only concern is the fiduciary -- now putting on my fiduciary hat. If there is an opinion from the Law Department which I have not seen or read, which seems to say that Section 1000 requires waiting five years, I would like to hear, not necessarily today but maybe at the next board meeting -- regular board meeting not the investment meeting -- I'd like to hear from them a little more concerning that, a real analysis as to why this would essentially be violative of Section 1000.

Additionally, I would also suggest it might be good to hear from NYCERS in terms of operationally how these are processed. Maybe, again, at the next meeting. I applaud TWU for taking the initiative. I just think all the trustees would be well served to get the full picture before you vote on it.


I think that's an excellent point. I think Diane actually wants to share some information with us.


I just wanted to inform the board that when Mr. Rosenfeld raised this issue, we did considerable amount of due diligence with respect to our process and external processes, and with respect to the law, it went into effect in the year 2000, and so we have been implementing in this manner for the past 11 years, and we have never really received a challenge up until this point.

So we looked at the law internally and we felt that we were administering it correctly. Then we subsequently polled various Retirement Systems throughout the state and have discovered that they also do it, from an administrative point of view, consistent with the way we do it.

And then when Mr. Rosenfeld raised it again, we pursued it with the Law Department and we spoke to Jay Cook directly with regard to it and he sent an e-mail essentially -- I will pass it out, but indicating that essentially we were doing it appropriately. So that's the information that I have at this point, and we've been acting on that opinion. So perhaps we'll just hand out Jay's e-mail, either that or give the board sometime to –


If I may just address Mr. Cook's e-mail. I spoke to Jay about this personally. And Jay said, "Norman, you are absolutely right. It's not in the law, but there is enough language we can hang our hat on."

So that's where I'm coming from. It's not in the law, but there is enough language, the language being that you don't get credit for five years so therefore make the veteran wait five years means making more money because most union members, they're on a stepped-up basis. They come in with this lower salary and they get step-ups and by the fifth year they're at full salary.

And therefore the same military purchase, if he would have purchased it after one year or two years, would have cost him much less money for the same military service. So as a veteran, I'm looking out for their -- and especially my own members, I've had two of them come to me and complain that they got letters and that was it, it was a dead issue as far as they're concerned, they got a letter from NYCERS saying "Sorry, you have to wait five years."

So why would they go back to NYCERS and question it? They get a letter saying, you know, you have to wait five years, that's it, it's a dead issue as far as they are concerned.


Mr. Zaccone?

MR. ZACCONE (rep for Staten Island Borough President):

I appreciate the e-mail that was passed around. I think it is really probably more equitable to the Law Department if we give them the opportunity to create a more formal memorandum as opposed to a short e-mail in response to the question.

So while that's helpful, I really think the Law Department owes us a more detailed analysis of this than a short memo here, and I'd ask that that be done. And if Diane can come back at the next regular meeting, along the lines of what Mary said, just on the procedures now in place and the procedures that may have to be put in place if there is a change.


I'd be happy to do that.


Thank you.

MR. SNOW (attorney from Law Department):

We'll follow through with that prior to the next regular meeting.


Thank you.
Any further discussion on this?


The next item on the agenda pertains …

September 10, 2011 Board Meeting


That's Resolution Number 41.

The next item on the agenda pertains to a Law Department memorandum regarding the purchase of military credit under Section 1000; and that was in response to a proposed resolution by Mr. Rosenfeld.


Madam Chair, TWU respectfully is withdrawing this resolution. TWU would like to thank everyone for their time and consideration in this proposal, especially the Law Department. And despite the disagreement with the Law Department's opinion on how this law is being implemented by NYCERS, despite that, TWU feels that the legislative route is the best route to go. And I want to thank everyone for their time and consideration. We are officially withdrawing this resolution.


Thank you.

§ 1000. Military service credit.

Notwithstanding any law to the contrary, a member of a public retirement system of the state, as defined in subdivision twenty-three of section five hundred one of this chapter, shall be eligible for credit for military service as hereinafter provided:
A member, upon application to such retirement system, may obtain a total not to exceed three years of service credit for up to three years of military duty, as defined in section two hundred forty-three of the military law, if the member was honorably discharged from the military and all or part of such military service was rendered during the following periods: (a)commencing December seventh, nineteen hundred forty-one and terminating December thirty-first, nineteen hundred forty-six; (b) commencing June twenty-seventh, nineteen hundred fifty and terminating January thirty-first, nineteen hundred fifty-five; or (c) commencing February twenty-eighth, nineteen hundred sixty-one and terminating May seventh, nineteen hundred seventy-five;
A member, upon application to such retirement system, may obtain a total not to exceed three years of service credit for up to three years of military duty, as defined in section two hundred forty-three of the military law, if honorably discharged therefrom, if all or part of such services was rendered in the military conflicts referenced below, as follows: (a) hostilities participated in by the military forces of the United States in Lebanon, from the first day of June, nineteen hundred eighty-three to the first day of December, nineteen hundred eighty-seven, as established by receipt of the armed forces expeditionary medal, the navy expeditionary medal, or the marine corps expeditionary medal; (b) hostilities participated in by the military forces of the United States in Grenada, from the twenty-third day of October, nineteen hundred eighty-three to the twenty-first day of November, nineteen hundred eighty-three, as established by receipt of the armed forces expeditionary medal, the navy expeditionary medal, or the marine corps expeditionary medal; (c) hostilities participated in by the military forces of the United States in Panama, from the twentieth day of December, nineteen hundred eighty-nine to the thirty-first day of January, nineteen hundred ninety, as established by receipt of the armed forces expeditionary medal, the navy expeditionary medal, or the marine corps expeditionary medal; or (d) hostilities participated in by the military forces of the United States, from the second day of August, nineteen hundred ninety, to the end of such hostilities in case of a veteran who served in the theater of operations including Iraq, Kuwait, Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, Oman, the Gulf of Aden, the Gulf of Oman, the Persian Gulf, the Red Sea, and the airspace above these locations.
A member must have at least five years of credited service (not including service granted hereunder) to be eligible to receive credit under this section.
To obtain such credit, a member shall pay such retirement system, for deposit in the fund used to accumulate employer contributions, a sum equal to the product of the number of years of military service being claimed and three percent of such member's compensation earned during the twelve months of credited service immediately preceding the date that the member made application for credit pursuant to this section. If permitted by rule or regulation of the applicable retirement system, the member may pay such member costs by payroll deduction for a period which shall not exceed the time period of military service to be credited pursuant to this section. In the event the member leaves the employer payroll prior to completion of payment, he or she shall forward all remaining required payments to the appropriate retirement system prior to the effective date of retirement. If the full amount of such member costs is not paid to the appropriate retirement system prior to the member's retirement, the amount of service credited shall be proportional to the total amount of the payments made prior to retirement.
In no event shall the credit granted pursuant to this section, when added to credit granted for military service with any retirement system of this state pursuant to this or any other provision of law, exceed a total of three years.
To be eligible to receive credit for military service under this section, a member must make application for such credit before the effective date of retirement. Notwithstanding the foregoing provisions of this subdivision, an individual who retired on or after December twenty-first, nineteen hundred ninety-eight and before the effective date of this section may make application for credit pursuant to this section within one year following the effective date of this section, in which event, the cost to the retiree would be based on the twelve month period immediately preceding retirement.
All costs for service credited to a member pursuant to this section, other than the member costs set forth in subdivision three of this section, shall be paid by the state and all employers which participate in the retirement system in which such member is granted credit.
A member who has purchased military service credit pursuant to section two hundred forty-four-a of the military law shall be entitled to a refund of the difference between the amount paid by the member for such purchase and the amount that would be payable if service had been purchased pursuant to this section.
Notwithstanding any other provision of law, in the event of death prior to retirement, amounts paid by the member for the purchase of military service credit pursuant to this section shall be refunded, with interest, to the extent the military service purchased with such amounts does not produce a greater death benefit than would have been payable had the member not purchased such credit. Notwithstanding any other provision of law, in the event of retirement, amounts paid by the member for the purchase of military service credit pursuant to this section shall be refunded, with interest, to the extent the military service purchased with such amounts does not produce a greater retirement allowance than would have been payable had the member not purchased such credit.
Anything to the contrary in subdivision four of this section notwithstanding, to obtain such credit, a member who first joins a public retirement system of the state on or after April first, two thousand twelve shall pay such retirement system, for deposit in the fund used to accumulate employer contributions, a sum equal to the product of the number of years of military service being claimed and six percent of such member's compensation earned during the twelve months of credited service immediately preceding the date that the member made application for credit pursuant to this section.

Tuesday, January 7, 2014

Where's Waldo?

For the fourth year in a row, NYCERS has failed to identify the Chair of the Board of Trustees. See page 7 of the new FY-2013 NYCERS CAFR .

For fun, check the video of the most recent investment meeting to get a glimpse of this elusive person.

On a more substantive issue, check pages 121 to 128 of the CAFR to see the details on $150.5M paid in investment fees of which roughly $110.0M was wasted. Also check page 105 for a notice of $29.7M which was paid for miscellaneous and organizational costs. In plain English, that is $29.7M down a rat hole. NYCERS has no clue who it paid this money to. At the end of the year the agency was just short $30M. What the heck, we'll charge it to organizational costs. No one will know the difference. I wonder if that will work with the DFS auditors?

On a funny closing note, check page 107. Susan Sanders now performs consultant services for $100K per year. She no longer provides legal services. I guess someone at NYCERS is reading my blog.