An Agency Adrift

During the 12/12/2024 NYCERS Board of Trustees meeting, the executive director, Melannie Whinnery, presented the FY-2024 budget reconciliation report. The key item in the report was that NYCERS had only spent $130.3M, which was $38.1M less than the budgeted amount of $168.4M.

The cause of the shortfall was reported to be mainly due to:

1. $27.2 M delayed payments for the Legacy Replacement Project (LRP, an IT upgrade project) because of the delayed implementation of the project and
2. $9.0 M unspent payroll allocation because of difficulty in hiring new authorized personnel.

The LRP shortfall

In the FY-2024 budget, the LRP project was budgeted at $61.03M for consulting services. I guess we can assume that, in spite of the shortfall and delays, NYCERS did pay $33.83M ($61.03M-$27.20M) for consulting on the LRP project in FY-2024.

Listed below are the official NYCERS budget and ACFR non-payroll costs for the previous eight years:

Non-Payroll Shortfalls

Year	Budgeted	Actual	Underspent
2024	$98.0M	$69.8M	$28.2M
2023	$90.4M	$47.8M	$42.6M
2022	$84.5M	$52.7M	$31.8M
2021	$50.2M	$38.7M	$11.5M
2020	$45.9M	$31.9M	$14.0M
2019	$43.5M	$38.4M	$5.1M
2018	$21.8M	$19.2M	$2.6M
2017	$20.9M	$20.2M	$0.7M

Since FY-2020, as seen in the table above , NYCERS has been significantly underspent the budgeted amounts for its non-payroll expenses with the LRP project being the big-ticket item.

The LRP project was proposed in the spring of 2015 and was originally to start in FY-2016. Miscellaneous components of the project finally did get started in FY-2018. An RFP for the LRP was issued in December 2017. It was, however, withdrawn six months later in June 2018.

The current executive director was hired in the fall of 2017

In FY-2021 the LRP contract was finally awarded to Accenture for $85M with a five-year term ending in June 2026. As reported at the December Board meeting, a stripped-down version of Phase 2 is supposed to be in place by the first quarter of 2025.

Phase 1 appears to have been in place by the spring of 2023. It basically entailed the selection of an off-the-shelf commercial pension administration software package, PENFAX. The annual license charges started in FY-2022 and are currently budgeted at $4.4M in FY-2025. This is just for the licenses and not the customized application. The package will need extensive customization which I suspect will be the core work of Phase 2 through Phase 5.

This project is way behind schedule and will be way over budget, assuming it is ever implemented. I cannot overstate the enormous costs that are being incurred by this project. NYCERS never lets on that this project is its tenth year of dvelopment and that it was origianlly a five year project.

LRP Costs

For the seven years since FY-2018, the costs for

1. software licenses have increased from $2.2M to $10.8M with a total cost for the seven years of $39.9M, and
2. computer consulting has increased from $3.0M to $40.4M with a total cost for the seven years of $104.4M. Yes, over $100 million.

These significant costs are despite the shortfall in spending.

You would think that there must be members of NYCERS, NYC workers belonging to DC-37, who could do this work more effectively and at less cost.

Note: DC-37 is a NYCERS trustee.

There are eleven consulting companies who have been paid over $2.0M in the last seven years:

Consultants Paid over $2M

1	Accenture	$41.0M
2	Gartner	$12.1M
3	InfoPeople	$8.6M
4	Universal Technologies	$7.5M
5	Rangam Consultants	$5.4M
6	Spruce Technology	$4.2M
7	Blue Hill Data Services	$4.2M
8	Experis US Inc. ---	$2.8M
9	Linea Solutions	$2.5M
11	Computer Management Resources	$2.5M
19	ZebraEdge Inc.	$2.2M

There are another twelve companies who have been paid over $1.0M in the last seven years. That is at least $12M plus.

There are another eight companies who have been paid over $500,000 in the last seven years. That is at least $4M plus.

We are not talking about DOD here. This is just a large municipal pension system, one of five in NYC.

The Staffing Shortfall and the Option Letter Delay

In the spring of 2023, as part of the NYCERS FY-2024 budget presentation, the executive director outlined serious production problems at the agency, especially the delays in producing option letters for new retirees (9/3/2923). Because of these problems the executive director asked for thirty two new full-time employees. The trustees approved only an increase of sixteen employees, raising the agency’s total of full-time employees to 501.

In the spring of 2024, the executive director, in a remote video meeting with the Municipal Labor Committee, projected that the option letter delay would be reduced to six months by the end of July 2024. She did, however, gave herself some leeway in that the agency was having trouble hiring new employees. July came and went without hitting the six-month mark.

As of the December 12, 2024, NYCERS Board meeting, NYCERS staff reported that the option letter delay was at nine months ( November 2024) down from 13 months in the fall of 2023. The new six-month target date was now moved to the first quarter of 2025. It was noted that the number of retirement applications had dropped in 2024, which was a help with decreasing the delay with producing the option letters.

At the same Board meeting the staff attributed the delay in solving this problem to the agency’s failure to hire new employees.

In FY-2021 and FY-2022 NYCERS had no problem hiring forty-five new employees.

Listed below are the official NYCERS budget and ACFR payroll costs for the previous eight years:

Payroll and Fringe Shortfalls

Year	Budgeted	Actual	Underspent
2024	$67.9M	$60.2M	$7.7M
2023	$56.0M	$57.7M	-$1.7M
2022	$51.3M	$52.3M	-$1.0M
2021	$48.1M	$48.7M	-$0.6M
2020	$45.9M	$45.7M	$0.2M
2019	$43.9M	$43.7M	$0.2M
2018	$40.9M	$40.4M	$0.5M
2017	$39.7M	$39.5M	$0.2M

Why is the NYCERS Retirement Option Letter Taking 12 Months?

At the July 2023 NYCERS Board meeting NYCERS staff briefed the Trustees that the lead time for retirement option letters (see below) was 12 months. This is a big service problem.

I’ve previously posted about this problem in December 2019 when the lead time was six months as opposed to the target of 3 months. The NYCERS budget was $62.7M in FY-2018. It was $146.4M in FY-2023.

How did this problem become worse?

NYCERS has become devoured by an out-of-control IT project and has lost focus on providing service to members and retirees.

As reference, below is a chart of the NYCERS admin budget since 2018

NYCERS Staff and Budget FY-2018 to FY-2024

Year	Full Timers	Part Timers	Temp-Hourly	PS Expenses	OTPS Expenses	Fringe Expenses	Total Expenses
2018	415	35	0	$31.7	$21.8	$9.1	$62.7
2019	428	35	0	$33.6	$43.5	$10.3	$87.5
2020	438	27	16	$35.3	$45.9	$10.7	$91.8
2021	474	27	16	$36.8	$50.2	$11.3	$98.3
2022	483	30	16	$39.5	$84.5	$11.8	$135.8
2023	485	30	16	$43.0	$90.4	$12.9	$146.4
2024	501	30	16	$54.3	$98.0	$13.8	$165.9

Retirement Option Letter

When a NYCERS member is planning to retire, he/she usually visits the customer service center on Jay Street in downtown Brooklyn around 60 days before his/her retirement date. He/she files a retirement application and sits with NYCERS staff person to be briefed on the procedure.

One of the things the NYCERS agent does is give the member a printed estimate of the member's "maximum" retirement benefit amount along with reduced amounts for option selections for a given beneficiary. The estimate, however, is not adequate to allow a member to make an informed option selection.

Choosing an option rather than a maximum benefit allows a member to leave continuing benefit to a designated beneficiary after the member dies.

With a maximum choice NYCERS stops payment of the full benefit amount when the retiree dies. If the member chooses one of the option amounts, NYCERS will continue to pay a benefit to the beneficiary that the member designated when he/she picked an option choice.

This maximum/option election occurs after the member receives the final option letter. The members have 60 days after the date of the letter to make his/her choice. Currently, NYCERS is informing members that it will take about twelve months for NYCERS to send the member a final option letter on the annual retirement benefit along with the reduced amounts associated with option benefits that member can select in place of the full benefit.

As of 2005, NYCERS was quoting a three-month period for sending a final option letter to members who were retiring.

So, With an Unlimited Budget, I Guess Five Months is Good Enough for an Option Letter.

In December 2019, I wrote a complaint about how NYCERS was taking six or more months to produce final benefit letters for newly retired members.

At the March 11, 2021 Board of Trustees meeting, the "Chief Operations Officer" reported to the trustees that NYCERS was now getting the benefit letters out in five months and had met its goal. She also asked if she could stop reporting to the trustees about the benefit letters as long as she was meeting the five-month goal. The trustees agreed to the request.

I am sorely tempted to call the trustees stupid but that is not accurate. The decision they agreed to was stupid just like paying $245M/yr for bad investment advice.

First of all, five months is a poor goal. The traditional goal is three months. Second, they now have no way of knowing whether this goal is being maintained. Third, this is the key monthly production figure for NYCERS along with the number of loans issued each week. It should be the highlight of the executive director's monthly report to the trustees.

Note: There is no civil service title at NYCERS for chief operations officer. In fact the legal civil service title is deputy executive director and there is another person in that position. That person is legally responsible for the functions being assigned to the "COO". I suspect, however, that person is on her way out. Here we have the Dilbert Principle in full bloom.

Why Does NYCERS Take Six Months to Create a Retirement Option Letter

Update: 12/31/2019 - NYCERS spent $82.1M in FY-2019 on operating expenses, up from $59.7M in FY-2018.

In particular:

NYCERS Contract Expenses for FY-2019

Expense	Amount
Gartner	$1,665,620
CWI Coaching	$185,000
Accenture	$7,961,315
Blue Hill Data	$1,124,800
22 various IT consulting firms	$3,172,751
Software Licenses&Support	$6,033,250
DP Equipment	$4,521,706

When a NYCERS member is planning to retire, he/she usually visits the customer service center on Jay Street in downtown Brooklyn around 60 days before his/her retirement date. He/she files a retirement application and sits with NYCERS staff person to be briefed on the procedure.

One of the things the NYCERS agent does is give the member a printed estimate of the member's "maximum" retirement benefit amount along with reduced amounts for option selections for a given beneficiary. The estimate, however, is not adequate to allow a member to make an informed option selection.

Choosing an option rather than a maximum benefit, allows a member to leave continuing benefit to a designated beneficiary after the member dies.

With a maximum choice NYCERS stops payment of the full benefit amount when the retiree dies. If the member chooses one of the option amounts, NYCERS will continue to pay a benefit to the beneficiary that the member designated when he/she picked an option choice.

This maximum/option election occurs after the member receives the final option letter. The members has 60 days after the date of the letter to make his/her choice.

Currently, NYCERS is informing members that it will take about six months for NYCERS to send the member a final option letter on the annual retirement benefit along with the reduced amounts associated with option benefits that member can select in place of the full benefit.

As of 2005, NYCERS was quoting a three month period for sending a final option letter to members who were retiring.

Why this fall off in the service level?

As of 2020, NYCERS has an administrative budget of $81.1M and 476 employees (F/T, P/T, Per Diem).

In 2005, NYCERS had an administrative budget of $34.6M and 385 employees (F/T, P/T. College Aides).

As of August 8, 2018, NYCERS awarded a $14.8M contract to Accenture to install a customer relation management system (CRM). If you want to read the gory details, check the NYC City Record website for a Employees Retirement solicitation date 11/27/17, CRM.

A rough definition of a CRM system is as follows:

Customer relationship management (CRM) software is software that automates and manages the customer life cycle of an organization. It is usually used by the sales team, sales reps, and call center reps to maintain contact with customers and quickly respond to their needs.

You might think that this project would help with improving the service that NYCERS is trying to give retiring members. This contract had a one year implementation term with 3 years of maintenance and three one year renewal options. With this effort members should be seeing improved service since the one year was up as of August, 2019. Of course the project is late.