A Four Year Delay in the NYCERS LRP Project - Time for DOI to Investigate

In its FY-2024 financial report (released in December 2024), NYCERS stated that there was a serious delay in completing its Legacy Replacement Project with only a vague reference to changes in the legacy systems. NYCERS promised a report with a new schedule at its February 2025 Board meeting. See the text below:

LRP began in June 2021, with a plan to complete the transformation over five years/five phases, with a target completion of September 2026.

Phase 1 was launched in January 2023, introducing foundational functionality that future phases will build upon.

In the midst of Phase 2 delivery, a range of legacy system changes surfaced that impacted the overall timeline. The Systems Integrator proposed to deliver a subset of Phase 2, called Phase 2.0, as this functionality did not rely on those legacy system changes, and we are currently on track for a January 2025 launch.

In parallel to a Phase 2.0 delivery, the Systems Integrator and NYCERS are working on a re-baseline plan for the remaining phases, which will be discussed during the February 2025 Board of Trustees Meeting.

February 2025 Board of Trustee Meeting

Last week at that meeting, the staff reported to the trustees that the new tentative completion date for the LRP project would be at the end of 2030 rather than the original September 2026 date. That is over four years behind schedule for a five-year contract.

Since December, Accenture (the "systems integrator"), the firm developing the project, delivered a revised high-level plan for the completion of the remaining scope of the project with a target date as of the end of 2030. The NYCERS staff stated that it had reviewed this plan.

Going forward, Accenture will provide a detailed resource plan supporting the 2030 completion target date. This detailed plan is needed for NYCERS to be able to give final approval for the new plan. The NYCERS approval of this new plan is targeted for the spring of 2025.

After a two-minute presentation there were no questions from the trustees concerning this four-year delay. This is obscene.

Background

NYCERS started the LRP project in July 2015. It was the brain child of Liz Reyes, the IT director at the time. She now is the deputy executive director and is hoping to become the executive director in May when the incumbent retires.

NYCERS signed the LRP implementation contract with Accenture in April 2021. It had an approximate term of five years with a total cost of $85.1M.

Three years later in 2024, Accenture notified NYCERS that the September 2026 completion date was not achievable.

When does gross incompetence become criminal?

I am not aware of any evidence of corruption involving the LRP project.

However, NYCERS’s glaring incompetence and obvious inattention to the project’s risks raises red flags that should be investigated.

NYCERS has never produced a cost/benefit analysis for this project.

Gartner has been under contract to NYCERS since 2015 providing advice on the LRP project. What was that advice?

During 2019 and 2020, NYCERS paid Accenture approximately $12M to install a Salesforce application. This means that Accenture has had extensive experience with NYCERS’s operations. Why did it take Accenture three years to come up with a new completion date four years out from September 2026?

The Legacy Replacement Project on Life Support

Collapse of the Legacy Replacement Project - Update 1/14/2025

I just recently commmented on spending problems with the Legacy Replacement Project at NYCERS.

Days later I became aware of a statement in the NYCERS FY-2024 NYCERS financial report, pages 12-13. The report was released in late December 2024, roughly three weeks ago. The statement indicates serious problems with LRP project. Below is the quote.

Quote from FY-2024 NYCERS ACFR

LRP began in June 2021, with a plan to complete the transformation over five years/five phases, with a target completion of September 2026.

Phase 1 was launched in January 2023, introducing foundational functionality that future phases will build upon.

In the midst of Phase 2 delivery, a range of legacy system changes surfaced that impacted the overall timeline. The Systems Integrator proposed to deliver a subset of Phase 2, called Phase 2.0, as this functionality did not rely on those legacy system changes, and we are currently on track for a January 2025 launch.

In parallel to a Phase 2.0 delivery, the Systems Integrator and NYCERS are working on a re-baseline plan for the remaining phases, which will be discussed during the February 2025 Board of Trustees Meeting.

The quote opens with an inaccurate statement that the LRP project started in FY-2021. It started in FY-2016. The project is now in its tenth year, FY-2025. It is also not responsible to say that it will be completed by September 2026.

The real problem, however, is raised in the highlighted text in the quote. As stated in the previous year's ACFR, Phase 2 was projected to "launch" in September 2024. That target has now vanished.

NYCERS states that at some point during FY-2024 a "range of legacy system changes" surfaced which impacted the Phase 2 timeline. At that point NYCERS was in the midest of the ninth year of the project or the third year of the Accenture contract. NYCERS gives no specific details of what the "changes" are and how they impact the project. I suspect that the scale of the legacy systems are overwhelming the standard Penfax software application which NYCERS contracted to handle the legacy functions. This obstacle will either force a redesign of the project with an associated delay or a revelauation of the total project.

NYCERS states that it will discuss a new timeline at the Febuary 2025 Board of Trustees meeting. That should be an interesting meeting.

The new Phase 2.0 is stripped down application that does not support any of the functions of the legacy systems. This minimal application has a delivery date of January 2025. This date is four months after the Septemebr 2024 date for the original Phase 2.

It now appears that the excutive director will be retiring on May 1, 2025 after seven and half years at NYCERS.

This project is out of control.

NYCERS CAFR/ACFR Comments on the Legacy Replacement Project since 2016

In light of the chaos described above, please refer to the quotes below from NYCERS annual financial statements from 2016 to 2024. The quotes are updates on what is happening with Legacy Replacement Project. Obviously NYCERS never thinks that anyone will backcheck what they said the year before.

I will let the quotes speak for themselves.

2016

NYCERS has embarked on a multi-year project to modernize our business processes and related technology. The principal objective of this initiative is to replace our legacy data processing environment and establish a new Pension Administration System that will transform the way we do business and interact with our members, pensioners, and various stakeholders such as employers and other City agencies. The intended outcome is to provide streamlined services in a modern context using up-to-date technologies that are flexible and provide value in an ever-changing environment.

2017

NYCERS is on a journey of transformation through the accomplishment of key initiatives that will span the next 5 to 6 years. We have been preparing for our upcoming multi-year legacy system replacement project, including developing the Request for Proposals, data analysis and data cleansing.

2018

During fiscal year 2018, NYCERS continued along the journey of transformation through the accomplishment of several key initiatives designed to help us deliver a world-class customer experience and enhance our operations, while preparing for the replacement of our legacy systems.

2019

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

NYCERS issued a Request for Proposal (RFP) for the LRP on April 18, 2019. Proposals were received on July 15, 2019 and are currently under review.

2020

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

NYCERS issued a Request for Proposal (RFP) for the LRP on April 18, 2019 and expects to complete contract negotiations with the selected vendor by December 31, 2020.

2021

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

The LRP will be completed over five phases. Phase 1 began on June 22, 2021. It is anticipated each phase will take approximately one year to complete.

2022

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

The LRP began in June 2021 and is expected to be completed by June 2026 over five phases.

Phase 1 is scheduled to launch in January 2023.

2023

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

The LRP began in June 2021 and is expected to be completed by June 2026 over five phases. Phase 1 launched in January 2023. Phase 2 is currently scheduled to launch in September 2024.

2024

The Legacy Replacement Project (LRP) is a complex, multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system will transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

LRP began in June 2021, with a plan to complete the transformation over five years/five phases, with a target completion of September 2026. >p> Phase 1 was launched in January 2023, introducing foundational functionality that future phases will build upon.

In the midst of Phase 2 delivery, a range of legacy system changes surfaced that impacted the overall timeline. The Systems Integrator proposed to deliver a subset of Phase 2, called Phase 2.0, as this functionality did not rely on those legacy system changes, and we are currently on track for a January 2025 launch.

In parallel to a Phase 2.0 delivery, the Systems Integrator and NYCERS are working on a re-baseline plan for the remaining phases, which will be discussed during the February 2025 Board of Trustees Meeting.

A Better Way: $92B rather than $81B

Assest Allocation

The most important decision that the NYCERS trustees make is the investment asset allocation of the funds of the trust. The asset allocation is a list of types of investments and the percentage of funds assigned to each type or class. Currently the trustees have chosen a complicated and very expensive allocation. The current list of classes and percentages is as follows:

1. US Equities -28.6%
2. International Equities – 11.5%
3. Emerging Market Equities – 4.9%
4. Fixed Income – Structured – 20.9%
5. Fixed Income – High Yield – 4.1%
6. Fixed Income – TIPS -3.3%
7. Fixed Income – Converts – 1.8%
8. Private Equity – 10.5%
9. Private Real Estate7.3%
10. Private Infrastructure – 2.4%
11. Private Credit – 4.4%

As a reference the allocation in 2000 was as follows:

1. US Equities -56.2%
2. International Equities – 14.9%
3. Fixed Income – Structured – 24.8%
4. Fixed Income – High Yield – 4.0%
5. Private Equity – 0.1%

The NYCERS Annual Finacial Statement

Each year, NYCERS issues a financial statement which includes accounting statements and investments results and costs. In particular, the report posts the rate of return for the entire portfolio and each allocation class. Also posted are the investment expenses for the year.

Rate of Return

In the first table below , “Rate of Return” , there is a list covering 1998 to 2023 of

• rates of return (ROR) for the full NYCERS portfolio and
• the ROR for the two classes, 1) US Equities and 2) Fixed Income – Structure.

You will see that since 2002 the average portfolio ROR is 7.13% (22 years), while the average ROR for the two classes, US Equities and Fixed Income – Structured with a 67%/33% allocation is 7.73% over the same 22 years. So how would this difference translate into a change in the NYCERS annual closing balances? I will try to give you an estimate below.

Notes:

• In 2007, both private equity and investment expenses started a steady long term increase.
• In 2015, NYCERS started to report asset rate of returns net of fees. Prior to that returns were reported gross of fees which inflated returns.

Closing Balances

In the second table below, “Closing Balance for NYCERS”, you will see that

• the closing balances for 2001 at $37.30 billion and
• the closing balance for 2023 at $81.4 billion.

That is an average increase of 4.11% over 22 years. This is less than the average portfolio ROR, 7.13%, because each year a part of portfolio return is used to pay benefits and expenses for that year.

You will also see in this table the investment expenses over the 25 years from 1999 to 2023.

Simulated Closing Balances

In order to gauge the effect of using the simple two class asset allocation, I simulated the closing balances from 2002 to 2023 using the two-class investment strategy, I used the closing balance for 2001, $37.3 billion, as the starting base and created the simulated closing balances for each year as follows (see Closing Balance table below):

• for each year I added the ROR for the actual closing balance to the annual delta created by subtracting the portfolio ROR from the ROR of the two-class strategy and
• then multiplying the previous simulated closing balance by the sum of the two percentages plus one to arrive at the simulated closing balance for that year.

In the early years, the portfolio allocation kept ahead of the two-class strategy but by 2013 the portfolio strategy started to steadily fall behind the two-class strategy. By 2023 the closing balance of the two- class strategy was at $91.59 billion while the portfolio closing balance was only at $81.4 billion. Remember that 2015 is the year that NYCERS stared reporting ROR net of fees.

It is reasonable to suspect that the difference between the two strategies may be greater than the $10 billion.

Private Equity and Real Estate LLC's

As of 2007, you will see in the Rate of Return table that the amount of money being allocated to private equity (2018 - real estae LLC) started to grow significantly. The private equity and real estate classes are very expensive. There is also an issue with their assigned values in the actual NYCERS closing balances. The quoted values of these two assets are very unreliable because there are no public markets for these asset classes. The two-class strategy, however, does not have this problem because they both have public markets trading their assets.

Investment Expenses

Finally, if you focus on the investment expense over the 2002 to 2023 period in the Claoing Balance table, you will see that NYCERS paid a total of $3.9 billion of which $2.0 billion was incurred in the last eight years. My conservative projection of the investment expense for the same period using only the two classes is $1.3 billion, a $2.6 billion difference. I based my estimate on the 2002 ratio of investment expenses to the closing balance, 1.14%. >

NYCERS Rate of Return from 2002 to 2023

Fiscal Year	Total Portfolio ROR	Eq - FI only ROR (67%/33%)	US Equity ROR	Struct F.I. ROR	Private Equity ROR	Real Estate ROR	PE assets (in billions)	RE assets (in billions)
2023	8.18%	11.88%	18.07%	-0.68%	0.50%	-1.85%	$8.427	$5.865
2022	-8.39%	-12.62%	-13.64%	-10.56%	25.02%	29.56%	$7.986	$5.672
2021	26.63%	30.21%	45.14%	-0.09%	49.61%	7.75%	$6.422	$4.360
2020	3.58%	6.92%	4.25%	12.34%	1.83%	1.81%	$4.661	$3.802
2019	7.13%	8.40%	8.37%	8.45%	14.66%	8.47%	$4.657	$3.565
2018	8.56%	9.74%	14.71%	-0.34%	17.83%	12.19%	$4.467	$3.398
2017	12.99%	12.23%	18.09%	0.34%	16.45%	10.24%	$9.259	nr
2016	1.52%	3.29%	1.68%	6.56%	6.36%	12.95%	$9.873	nr
2015	3.11%	4.87%	6.35%	1.88%	12.24%	16.06%	$9.825	nr
2014	17.04%	18.90%	24.96%	6.61%	15.20%	13.20%	$9.630	nr
2013	12.24%	15.35%	22.75%	0.33%	8.38%	12.89%	$8.255	nr
2012	1.32%	4.54%	2.23%	9.24%	7.50%	0.99%	$6.748	nr
2011	23.12%	23.55%	32.50%	5.37%	nr	nr	$5.257	nr
2010	14.09%	15.41%	16.33%	13.54%	nr	nr	$4.123	nr
2009	-18.18%	-15.62%	-26.16%	5.78%	nr	nr	$3.263	nr
2008	-4.60%	-6.31%	-12.84%	6.94%	nr	nr	$2.885	nr
2007	18.39%	15.58%	20.02%	6.58%	nr	nr	$1.834	nr
2006	9.83%	5.98%	9.45%	-1.07%	nr	nr	$0.846	nr
2005	9.22%	8.01%	7.91%	8.21%	nr	nr	$0.536	nr
2004	16.03%	13.98%	20.45%	0.83%	nr	nr	$0.286	nr
2003	3.94%	4.45%	0.72%	12.02%	nr	nr	$0.155	nr
2002	-8.64%	-8.64%	-17.05%	8.42%	nr	nr	$0.098	nr
2002-2023 Average	7.14%	7.73%	9.29%	4.58%	14.63%	10.36%
2001	na	na	na	na	na	na	na	nr
2000	9.43%	7.58%	9.06%	4.57%	nr	nr	$0.036	nr
1999	13.47%	13.97%	19.80%	2.12%	nr	nr	$0.000	nr
1998	21.29%	23.21%	28.55%	12.38%	nr	nr	$0.00	nr
Average	8.34%	9.62%
1998-2023 Average	8.04%	8.59%

Closing Balances of NYCERS Assets from 1999 to 2023

Fiscal Year	Invest Fees (millions)	Simple invest fees (millions)	Close Bal (billions)	CB % change	Delta - Portfolio vs Eq&FI only	Improved % Change	Simulated Close Bal (billions)
2023	$489.90	$93.39	$81.40	5.03%	3.70%	8.73%	$91.59
2022	$319.20	$88.92	$77.50	-9.78%	-4.23%	-14.01%	$84.23
2021	$313.20	$98.56	$85.90	22.89%	3.58%	26.47%	$97.96
2020	$245.70	$80.20	$69.90	2.04%	3.34%	5.38%	$77.45
2019	$240.50	$78.59	$68.50	5.06%	1.27%	6.33%	$73.50
2018	$241.80	$74.81	$65.20	6.36%	1.18%	7.55%	$81.77
2017	$223.80	$70.33	$61.30	10.45%	-0.76%	9.69%	$69.12
2016	$213.00	$63.68	$55.50	1.09%	1.77%	2.86%	$64.27
2015	$231.80	$62.99	$54.90	1.29%	1.76%	3.06%	$58.59
2014	$184.60	$62.19	$54.20	14.83%	1.86%	16.70%	$55.27
2013	$183.30	$54.15	$47.20	10.54%	3.11%	13.65%	$47.37
2012	$129.50	$48.99	$42.70	0.71%	3.22%	3.93%	$41.68
2011	$145.10	$48.65	$42.40	19.77%	0.43%	20.20%	$40.10
2010	$175.30	$40.62	$35.40	10.97%	1.32%	12.29%	$33.36
2009	$138.20	$36.60	$31.90	-19.65%	2.56%	-17.09%	$29.71
2008	$115.30	$45.55	$39.70	-6.59%	-1.35%	-7.94%	$35.83
2007	$98.10	$48.76	$42.50	13.94%	-2.81%	11.14%	$38.92
2006	$69.40	$42.80	$37.30	5.07%	-3.85%	1.22%	$35.02
2005	$53.90	$40.73	$35.50	3.80%	-1.21%	2.59%	$34.60
2004	$42.97	$39.24	$34.20	8.57%	-2.05%	6.52%	$33.73
2003	$29.27	$36.14	$31.50	-3.96%	0.51%	-3.45%	$31.67
2002	$37.63	$37.63	$32.80	-12.06%	0.00%	-12.07%	$32.80
Expense Ratio 20202		114.7%
2002 up Avg				4.11%		5.48%
2001	$41.30		$37.30	-12.85%	$37.30
2000	$37.43		$42.80	2.15%	-1.85%
1999	$25.16		$41.90	1.92%	0.50%
1998	na	na	na	na
Total Expenses 2002-2023	$3,921.48	$1,293.52
Diff in Expenses		$2,627.96