DFS and the Elusive Pension Audits

It is June 26, 2017, a sunny June day. It is also two years ago that the NYS Department of Financial Services announced a major audit of the seven major NYS retirement systems.

There are still no audits reports from DFS.

For the record, DFS is scared to death to publish any reports on the seven retirement systems. DFS knows how bad the situation is. They can either report the facts and create sheer terror, or they can fake it and be on record for hiding the facts.

Just stop billing the retirement systems for your bullshit audits and save the taxpayers some money.

Again, DFS and the Pension Audits.

Today the temporary head and the press officer of the NYS DFS suddenly resigned. This is after Lawsky left in June.

What happened to the audits of the seven state and city pension funds?

DFS is an agency in free fall.

Lawsky - What Happened to the Public Pension Audits?

Lawsky is leaving NYS - DFS.

What happened to the audits of the seven state and city pension funds?

Paper Tiger - the N.Y.S. Department of Financial Services - Pension Fund Audits

In July of 2013 the N.Y.S. Department of Financial Services (DFS) with a lot of fanfare announced the start of an audit of the seven state & city pension funds.

It's now January 20, 2015 and DFS has not yet produced any of the pension audits. Just a reminder, DFS has not produced an audit of NYCERS since 2002 in spite of the agency's statutory obligation to produce an audit every five years.

Of course, DFS collected $611,536 from NYCERS during FY-2014 for audit work that DFS supposedly did during that year.

When I saw the charges for 2014, I thought I'd do a little research. Here are the DFS audit charges to NYCERS since 2004:

• 2004: $ 55,007
• 2005: $ 64,612
• 2006: $361,681
• 2009: $179,542
• 2010: $ 32,009
• 2011: $ 29,713
• 2014: $611,536

This is an agency adrift. They are lost.

Hot Line for State Pension Fund Audit

In July the NYS Department of Financial Serives (DFS) announced an audit of the seven public pension funds in New York State.

Here's a news article dated yesterday announcing that the DFS has set up a hot line for whistle blowers to report wrong doing at any of the public pension funds in New York State. You can also check the DFS web site for the phone number .

I guess the the DFS auditors have found a need to go around the the management structures at the state and city pension funds to get a more unfiltered view of events at the pension funds.

Or maybe they read my posting about investment consultants.

State Insurance Audit Checklist

Since July 29. 2013 the State Insurance Department (NYS DFS) has accessed my blog 29 times. So I thought I would provide them with a suggested reading list. Below is a starting list. If I see something else that looks interesting, I'll add to the list.

• Who got the $140M?
• Why was the Transit Operating Force death benefit changed?
• The former chair of the NYCERS Board of Trustees
• Why is NYCERS paying the Comptroller?
• The civil service qualifications for the current NYCERS executive director
• Unaccounted investment fees , background , and more
• Investment madness
• Lack of disclosure on private equity and real estate transactions
• Hedge funds
• Private equity managers
• Delays in processing loans
• Examples of SPD errors ( A , B )
• NYCERS perjury
• D.O.I. and the perjury charge
• Funny wrinkle to the perjury and corruption story
• The WC offset nightmare
• Denial of due process
• The assumed interest rate
• Finally 7%, sort of
• Delays in pension benefit revisions
• The Met-Life building
• Disaster recovery site at L.I.C.
• Allegra Capital and lack of accounting oversight
• Harassment of EMS disabled retirees, and more
• Outside legal services
• Background on past State Insurance Department reports

The State Insurance Department Finally Wakes Up!

On Monday, July 29, 2013, the NYS Department of Financial Services (DFS) finally woke up.

In June of 2012, I had pointed out the agency's failure to do its job. And, again in March of this year I detailed continuing delay in its statutory obligation.

DFS is now initiating audits of the seven NYS retirement systems.

For the record, DFS has not released a report since the 2000-2002 audit for NYCERS.

I am absolutely certain that NYCERS needs a rigorous top to bottom audit of everything that it is supposed to be doing. Maybe DFS now has the hard focus it will need to get this job done.

How boring our lives would be without politicians.

NYS Insurance Department - Strange Delay

Since 1937, the NY State Insurance Department (“Department”) has had supervisory authority over NYCERS. See Section 13-183 (NYC Administrative Code) below:

§ 13-183 State supervision. The retirement system shall be subject to the supervision of the department of insurance in accordance with the provisions of sections three hundred seven, three hundred eight, three hundred nine, three hundred ten, three hundred eleven and three hundred twelve of the insurance law, so far as the same are applicable thereto, and are not inconsistent with the provisions of this chapter.

This statute requires NYCERS, as of March 1 of each year, to file an annual report with the Department. The Department controls the format of this report and requires a great deal of detail about NYCERS assets and operations. In some ways, it is comparable to fillings that the SEC requires public corporations to make.

The statute also requires the Department to conduct a periodic audit (“examination”) of NYCERS.

Over the years, the Department has conducted this examination of NYCERS on a five year cycle. The last full five year examination was 1995-1999.

In 2004 the Department began what I thought was going to be the 2000-2004 examination. By law, NYCERS is required to pay the cost of the examination. By July 2005, a draft of the examination was completed according to the Department. I was forced out as NYCERS executive director in March, 2005. During 2004, there was an ongoing conflict between the Department and the NYC Comptroller over investment issues at NYCERS.

As a point of interest, there was also conflict between the Department and the NYS Comptroller over the examination of the NYSLERS. In retrospect, there probably was a lot to have conflict over.

For an unknown reason the Department did not release the final NYCERS examination until June 25, 2009. In addition, the examination only covered 2000-2002, a three year period as opposed to the standard five year period. No reason was given.

This report highlighted 4 key findings:

1. NYCERS should make a greater effort to facilitate the examiner’s request for information on future examinations.
2. NYCERS did not have a comprehensive Investment Policy Statement that governed, controlled, and monitored its investment activities.
3. The NYCERS Board’s interactions with the Comptroller (BAM) and legal counsel (NYC Corp Counsel) indicate that the trustees need to be diligent regarding the inherent potential institutional conflict of counsel.
4. With regards to loaned securities, the Board and the Comptroller’s office did not give clear guidance to Citibank (custodial bank for city pension assets) on how to deal with downgraded securities in the portfolio.

The first item reflects the Comptroller’s reluctance to turn over documents to the Department.

The second item motivated the trustee to prepare an investment policy statement.

The third item is an ongoing dilemma. Legal advice given by NYC Corp Counsel to NYCERS is always subservient to Corp Counsel’s commitment to the mayor. The trustees, however, should require the Corp Counsel to include a declaration on all written legal advice that there is no conflict between the interests of NYCERS and the mayor with respect to the given advice. If there is, Corp Counsel should recuse itself.

The fourth item involves securities lending and the risk of default on securities held in the multi billion dollar leveraged portfolio that the custodian bank maintains for NYCERS. NYCERS is very shy about publicly reporting on the assets in this portfolio. Securities lending is a very complex process. General details are not readily available. Securities lending, however, is one of the biggest operations on Wall Street.

In FY-2009 NYCERS began paying the Department for a new examination. The normal pattern would be an examination for the 2005-2009 time frame. The 2003-2004 period, however, is still unreported and may be picked up in the current examination.

NYS Department of Financial Services - British Banks or NYS Public Pension Funds

I guess British banks are more important to the NYS Department of Financial Services than in-state public pension funds.

It's been ten years since the NYS DFS has done a meaningful and mandated audit of NYS pension funds but they have time for foreign affairs.

New York State Department of Financial Services -- Failure to Supervise

Quoted below are Section 314 of the NYS Insurance Law and Section 13-183 of NYC Administrative Code which authorizes the NYS Department of Insurance to supervise NYCERS.

§ 314. Public retirement and pension systems.

(a) In this section, "system" means an actuarily funded public retirement or pension system of the state of New York or of a municipality thereof.

(b) Notwithstanding any other provision of law to the contrary, the superintendent shall have, in addition to any other powers conferred upon him by law, the following authority with respect to any system:

(1) to require the administrative head or trustees of a system as may be appropriate to file an annual report pursuant to the provisions of section three hundred seven of this article in such form and containing such matters as the superintendent shall prescribe, and to respond in such form as the superintendent may require to any inquiry in relation to transactions or condition of the system or any matter connected therewith pursuant to the provisions of section three hundred eight of this article;

(2) to promulgate and amend from time to time, after consultation with the administrative heads of systems and after a public hearing, standards with respect to actuarial assumptions, accounting practices, administrative efficiency, discharge of fiduciary responsibilities, investment policies and financial soundness; and

(3) to make an examination into the affairs of every system, including compliance with the standards established pursuant to paragraph two hereof, at least once in every five years in accordance with the provisions of sections three hundred ten, three hundred eleven and three hundred twelve of this article and to recover the expenses of such examination from such system in accordance with the provisions of section three hundred thirteen of this article. A copy of each report on examination as filed for public inspection shall be forwarded to the governor, state comptroller and legislature and, in the case of systems of the city of New York, to the mayor, city comptroller and president of the city council.

§ 13-183 State supervision. The retirement system shall be subject to the supervision of the department of insurance in accordance with the provisions of sections three hundred seven, three hundred eight, three hundred nine, three hundred ten, three hundred eleven and three hundred twelve of the insurance law, so far as the same are applicable thereto, and are not inconsistent with the provisions of this chapter.

According to statute the NYS Insurance Department has conducted these audits every five years for as long as I worked at NYCERS and before. I began working at NYCERS in 1973. The last meaningful examination, however, was published in March, 2001. This examination started on October 4, 2000.

There was later examination published on June 25, 2009 during the Patterson administration. This examination was started on February 4, 2004 during the Pataki administration. In 2004 during the course of this examination there were serious confrontations between the Insurance Department and the NYC Comptroller's Office over investment policies at NYCERS.

When the NYS Insurance Department finally published this report, years later, on June 25, 2009, it had, besides being years late, also truncated the exam dropping the last two years of the statutory five year period. The Insurance Department made no acknowledgement of omission and gave no reason for it. Since the examination report was published seven years after the covered period, the report was of little value.

The NYS Insurance Department began a recent examination in early 2010. Based on the statutory five year exam period this examination should cover FY-2005 to FY-2009 and hopefully pick up the two lost years, 2003-2004, dropped from the last published examination. The Insurance Department has not yet published the report of the most recent examination. At best, the Insurance Department is almost three years late with this report.

On October 3, 2011 the NYS Insurance Department was reorganized into the new NYS Department of Financial Services. In November I requested a copy of the report of this 2010 examination from this new department. I was told that the report had not yet been published and there was no expected date for the release of the report.

It is clear that NYS Department of Financial Services has failed in its statutory obligation to properly audit NYCERS since 1999. In fact, it has failed to audit all seven of the NYS public pension plans as well as the numerous variable supplement plans associated with the NYC pension funds.