Strange Accounting at the CO-VSF and NYCERS

There appears to be some strange entries in the CO-VSF financial statements (City CAFR's) over the last several years.

• In the fiscal year ending June 30, 2014 there is an entry for $38M for benefit payments. There wer was no VSF benefit payments in December, 2013. There was also an entry for $190M for a skim from NYCERS to CO-VSF. The year opened with a balance of $36M and closed with a balance of $188M
• In the fiscal year ending June 30, 2015 there is an entry for $78M for benefit payments. The skim entry was $30M. The year closed at $140M.
• In the fiscal year ending June 30, 2016 there is an entry for $82M for benefit payments. The skim entry was -$53M. The year closed at $5M.

In May, 2015 NYCERS appointed a new actuary, Ms. Sherry Chan. The NYCERS actuary is also the CO-VSF actuary. The NYCERS chair and the Comptroller are also trustees of the CO-VSF Board.

In a May 12, 2016 resolution the NYCERS Board and the NYCERS actuary stated that there was a mistake in FY-2014 skim. The skim should have been only $137M and not $190M. In response to this screw up NYCERS pulled $53M out of the CO-VSF.

It is not clear wheteher the -$53M entry was just an accounting correction or an actual movement of money from CO-VSF to NYCERS. I do not know whether there is any legal authority that allows money to flow back to NYCERS from the CO-VSF.

In a Nov. 4, 2016 letter to the CO-VSF Board the NYCERS actuary, Ms. Chan, states on page 3 that there will be no skim in FY-2017 into the CO-VSF.

The actuary states that the skim is based whether the FY-2016 return on NYCERS's equity investments exceeds the average yield on the 10 year U.S. Treasury Notes by 115%.

She does not define what are NYCERS equity investments nor does she describe how she computes the returns. In particular she does not state whether hedge funds, or private equity and real estate partnerships are included in the equity investment class and how she would compute their returns considering that they are illiquid. For the record she does not state specifically what was NYCERS's return on its equity investments in FY-2016. She does not state what was the average yield on the 10 year U.S. Treasury Notes or how that number was computed.

If there is no skim, then there was a deficit for the CO-VSF for FY-2016. She does not mention what that resulting deficit was. There should be running chart year by year showing what the excess or deficit is and what the skim hurdle is.

She also states that the market value of the CO-VSF assets as of June 30, 2016 is $47M. She provides no details or support for this statement. The city CAFR states that the June 30, 2016 CO-VSF closing balance was $5M. For the record the city CAFR also does not detail the CO-VSF assets.

As far as I know there is no documentation about the investment activity for the CO-VSF. With a 3% return rate interest rate on a $35M bond portfolio, you should expect a $1.5M interest flow each year into the fund. The reported interest earned was $184,000 in 2016, $10,000 in 2015, $20,00 in 2014, and $38,000 in 2013. There is something very strange going on.