Renewal of the Lease for the NYCERS Disaster Recovery Site at Long Island City

In late spring of 2006 NYCERS signed a ten year lease for a disaster recovery site in Long Island City. It comes up for renewal this year.

As of today NYCERS still does not have a Certificate of Occupancy for the site. This means that there has never been a full fledged test of a recovery plan since legally workers are not permitted on the site. I have no idea how NYCERS can safely run their file backup system at this site when there is no permanent staff at the site. As far as I know there is no plan B.

NYCERS has an option to renew the lease for up to two five year periods.

What do you think D'Alessandro will do? What do you think the trustees will do?

NYCERS Investment Performance and Fees for FY-2015

As of June 30, 2014 NYCERS had a closing balance of $54,422.0M.

As of June 30, 2015, one year later, NYCERS had a closing balance of $54,889.3M

During FY-2015 NYCERS had revenue of $5,089.1M and expenses of $4,571.0M. That is a net inflow of $518.1M.

After the net inflow is subtracted from the June 30, 2015 closing balance, the adjusted FY-2015 closing balance is $54,371.2M. That is a decrease in assets for the year of $50.8M. This is essentially a no change in the value of the assets for the year.

During FY-2015, the S&P 500 index increased from 1960.23 to 2063.11 and the Barcaly's US Aggregate Bond Index increased by 1.86%. With a 70% stock/ 30% bond allocation, you should have had a target of 4.12% increase in assets for FY-2015.

At no point have the NYCERS Trustees made a public statement explaining why the fund performed so poorly or what they are going to do about it.

In conjunction with this poor performance NYCERS "reported" paying $231.8M in investment expenses for FY-2015. In FY-2014 NYCERS "reported" paying $184.6M. Listed below are the specifics of the $231.8M:

1. $28.4M : general stock & bond managers
2. $ 2.9M : Emerging managers - US equity
3. $ 0.4M : Emerging managers - US Fixed inc.
4. $ 7.0M : Junk bond managers
5. $ 2.3M : Convertible Bond managers
6. $40.4M : PE managers
7. $12.7M : PE Opportunity & Global FI
8. $31.7M : International Equity managers
9. $17.8M : RE managers
10. $39.8M : Hedge fund managers
11. $ 3.5M : investment consultants
12. $ 0.1M : legal fees (investment)
13. $13.0M : PE organizational fees
14. $ 5.1M : RE organizational fees
15. $ 4.5M : PE Opp/Global organizational fees
16. $15.5M : Foreign taxes
17. $ 2.1M : Comprtroller's subsidy
18. $ 4.5M : Miscellaneous

No one knows who the organization fees are paid to. That is $22.6M off into the great beyond.

Don't you wonder what the miscellaneous stuff was that the $4.5M bought?

What will the Comptroller's subsidy be in FY-2016 what with all the huge pay increase that the "investment" staff got in August?

This is all such obvious insanity. None are so blind as those who will not see.

Big Trouble with NYCEwork

On December 11, 2015 NYCERS filed a breach of contract claim against enChoice, a firm that NYCERS had hired in FY-2008 to implement a replacement system for its then current document imaging system. NYCERS is seeking $1,444,570 in damages plus interest and costs.

Last May I wrote about the lunacy at NYCERS when it comes to Information Technology (IT) issues. I particularly pointed out the serious problems that NYCERS was having with its new document management/workflow system. The following are NYCERS and my comments:

Comment from NYCERS:

RECENT HISTORY Over the past nine years, NYCERS has made significant infrastructure improvements. Document Management NYCERS continues to ensure the preservation and security of all vital records and to promote an environmentally sound approach to document management. This effort includes the incorporation of all incoming documents into the NYCEWORK system in an electronic format and the ongoing digitization of historical paper documents.

In 2014, NYCERS prepared, scanned and indexed over 200,000 incoming documents and converted over 1 million historical records into digital images. Since the inception of the document management project, over 38 million paper records have been imaged, saving approximately $600,000 in document storage fees.

My analysis:

From this quote you would think that document management was introduced during the last few years. In fact, it was there when D'Alessandro walked in the door. The system in place at that time used a software package called Staffware. It was working well but it was being stressed by the volume of documents that NYCERS was dealing with. It actually continued to function up until 2014 when a new software package, Filenet/NYCEWORK, was finally put into production. I wonder where the $600,000 in saved storage fees came from?

Unfortunately, while Staffware needed to be either upgraded or replaced, Filenet runs significantly slower than Staffware did. That in turn has created incremental delays at every step of every process in the agency. It has created havoc with the production levels for all major functions in the agency.

In FY-2008, NYCERS hired the company enChoice to do the upgrade. enChoice is an IBM partner specializing in implementing IBM's document management software, FileNet. NYCERS labeled the upgrade effort "NYCERwork". Over the next four years the NYCERS IT director, Liz Reyes, had enChoice working on this project.

NYCERS paid enChoice the following amounts:

• $1,609,278 in FY-2008
• $ 327,141 in FY-2009
• $ 267,465 in FY-2010
• $ 25,941 in FY-2011

Then, in NYCERS FY-2013 Annual Report, the agency's executive director, Diane D'Alessandro, made the follow statement:

NYCEWORK: A NEW DOCUMENT MANAGEMENT/WORKFLOW SYSTEM

NYCERS recognizes the imperative to update and link systems that process memberships, evaluate service, calculate pensions, and handle requests for account information as efficiently as possible. In June 2012, after extensive preparations, we launched NYCEwork, our document imaging and workflow system. NYCEwork maintains images of every document in a member’s lifecycle, beginning with the membership application and ending with the final payment of a retirement allowance to the member or survivor benefit to the designated beneficiary. In order to create a complete, imaged record and continue all of the ongoing work that business units handle, the IT team had to ensure that all active and closed work items and every relevant document were transferred from the outmoded Staffware system into NYCEwork, while at the same time accepting new forms and applications for the business units to process.

With the filing of the suit it is now clear to everyone that Reyes failed to properly manage the NYCEwork project.

What is really frightening about this failure is that the suit in no way fixes the problem. The day to day production problems are still there. There are threats to the integrity and security of the documents that have been committed to NYCEwork. Based on NYCERS claim to storage savings I have to asume the original documents have been destroyed. In addition, I know NYCERS's backup and recovery systems are totally ineffective.

And this is the management that wants to spend $132M over five years to do do an IT legacy upgrade.

The NYCERS trustees need to replace the senior management at NYCERS. If they don't, five years from now they will be looking at more breach of contract suits, more broken systems, a $132M in losses (if they are lucky), and five lost years.

Doesn't it ever occur to anyone that D'Alessandro worked for Shelley Silver before she came to NYCERS and that Martha Stark appointed her.

Note:

This is not the first contract suit that NYCERS has brought against an IT firm. At the same time enChoice was ramping up in FY-2008, NYCERS was also working with IBM ($2.36M over two year) to convert the NYCERS file system to a DB2 database system. Reyes again failed with this project and NYCERS subsequently sued IBM. Cleverly IBM settled with NYCERS by giving them a 20% discount on the purchase of hardware and services capped at $1M for a fixed period. NYCERS was only able to utilize $250,000 of the discount before the time period lapsed. These girls are really on the ball.

What is clear is that over the last 10 years the NYCERS administration has failed to put in place a modern relational database system for its applications.

Changing Stories about the 2015 Pension Investment Fee Explosion

On Nov. 3, 2015 I pointed out the investment fee explosion for the five NYC pension funds and the Comptroller's lame comments about the fees and the miserable performance of the pension funds. I also made the comment that I suspected "the Comptroller's Office was in shambles when it comes to accurate records of the payment of investment fees."

On Nov. 4, 2015 the Comptroller was quoted in P&I with a new story about why the fees are so high. It's no longer that the assets have increased or that they are being more comprehensive. The following is the the new excuse.

“Since we started the hard work of reforming the investment environment 22 months ago, we've uncovered layer after layer of Wall Street fees,” city Comptroller Scott Stringer said Wednesday in an e-mail. Mr. Stringer is the fiduciary for the five pension funds that make up the $162.9 billion retirement system.

“In our review of this year's financial report we've found even more charges — millions of dollars in 'incentive fees' — that had gone largely unreported in previous reports,” Mr. Stringer added.

“While we believe we've captured the bulk of the fee data, we will continue to refine our reporting and transparency processes until we have a complete picture of all fees and expenses paid,” said Eric Sumberg, a spokesman for Mr. Stringer, in an e-mail. “The comptroller has made transparency and fee disclosure priority issues for his administration.”

It has been clear for years that the investment fee problem is out of control. $522M is an obscene amount to pay for investing the assets of the five city pension funds. In the past I have been clear that 10 basis points should be the target level for fees.

Now this year we learn that the situation is worse ($705M) and not totally nailed down.

The obvious questions are:

• Now that the Comptroller has uncovered all these layers of fee, why hasn't he reported all the details?
• How did the fees go unreported in the first place?
• How were the unreported fees paid?
• how would you describe the unreported fees?
• Who received the unreported fees?
• What are the dollar amounts of the fees and the recipients?
• How do you know that you have found all the fees?
• Are the fees necessary given the miserable performance of the managers?
• How accurate is the 2014 CAFR which the Comptroller released last year?
• In general how reliable are any of the figures that the Comptroller has reported? Maybe this why the NYS DFS can never get the pension audits done. The black hole is too deep.

The final and most crucial question is, will the Comptroller release all the pension investment contracts to the public or will he continue to keep them secret and hidden from the public in spite of the fact that they are paid with taxpayer and employee money? When a contract has a clause that is prohibited by law, the contract is void. Of course, one of the parties must take action to void the contract.

Note: For the record the five funds do not have $162.9B in assets. They have $145.7B as of June 30, 2015. The TRS & BERS TDA's have $28.9B and the Police, Fire, and Correction Force VSFs' have $3.8B. The TDA and VSF funds are not available for covering the pension liabilities of the five funds. The Comptroller's Office always likes to quote the combined amounts but it is not accurate.

Note: Comptroller Stringer has been a trustee of NYCERS since 2006. Of course, he is not the only trustee.

Bad Year for the NYC Pension Funds - FY-2015 - Investment Fees and Performance

The Comptroller released the NYC FY-2015 Comprehensive Annual Financial Report (CAFR) on Friday, October 30, 2015. The following are some points from the press release:

The City pension systems earned $4.746 billion in net investment income in FY15 and paid benefits totaling $13.4 billion during FY15. Employer and employee contributions to the City pension systems were $10.0 billion and $1.8 billion, respectively;

The City pension systems paid investment expenses totaling $708.9 million in FY15, an increase over FY14 that primarily reflects increased assets under management and more comprehensive fee disclosure and reporting;

These numbers are accurate but they are presented in a deceptive way.

The five funds received $1.94B in interest payments and $2.66B in dividends during 2015. They also earned $73M in securities lending income. That adds up to $4.67B. It does not take much skill to collect interest and dividend payments. It definitely does not take $708.9M in fees, a $183.0M increase from last year.

Listed below are the fees (pension funds only) for the last 14 years. You can see from the numbers that the "increased assets under management" comment is not valid. Of course previous reported fees may be inaccurate but that's not what "more comprehensive" means. I have a strong feeling that the Comptroller's office is in shambles when it comes to accurate records of the payment of investment fees.

• Year: -- Fees ---- Assets
• 2015: $705.0M ($145.7B)
• 2014: $522.0M ($144.5B)
• 2013: $472.5M ($124.8B)
• 2012: $370.3M ($111.3B)
• 2011: $395.7M ($111.0B)
• 2010: $426.8M ($90.0B)
• 2009: $339.3M ($79.5B)
• 2008: $310.2M ($101.9B)
• 2007: $262.0M ($110.9B)
• 2006: $192.7M ($96.0B)
• 2005: $158.2M ($90.6B)
• 2004: $131.6M ($86.5B)
• 2003: $ 96.7M ($78.1B)
• 2002: $101.9M ($80.7B)

On July 30, 2015, P&I reported that the Comptroller estimated that the city pension funds had a 3.3% rate of return for FY-2015. Of that amount 3.1% is due to interest and dividends paid to the pension funds.

Based on the details in the CAFR, the total pension assets for the five funds increased only 0.198% in FY-2015. In addition, this miserable number is based on unreliable asset values for private equity, real estate, and hedge fund classes. Note that two of the funds have avoided getting sucked into the hedge fund swamp.

The opening balance for the city pension funds (no TDA and no VSF) was $144.5B. The closing balance was $145.7B. With a $0.9B positive cash flow you get a 0.198% increase in asset value.

The other bruising fact in the city's CAFR, along with the $183M increase in fees, is the $1.294B that was skimmed off from the TRS & BERS pension funds to the TRS & BERS TDA funds and the $672M that was skimmed off to the VSF funds.

In FY-2015, the S&P 500 index rose 5.2% (from 1960.23 to 2063.11). NYCERS reported a 1.88% net of fee return on its structured fixed income class (Treasures, Corporates, & Mortgage Backed Securities) with a benchmark of 2.08%. With the 70%/30% asset allocation that the funds are currently using, the projected increase in asset value for FY-2015 could easily have been 4.24%, not 0.198%. That would have been a $150.95B closing balance instead of $145.67B.

That is $5B in one year. This why investment decisions are so important. The state implements Tier 6 and the trustees blow it all on bad investments.

All five of the pension funds had a decease in their funding status in FY-2015. The levels weren't great to start with. Here is the bad news.

• NYCERS went from 75.32% to 73.13%.
• TRS went from 71.79% to 68.04%.
• BERS went from 78.60% to 75.33%.
• Police went from 74.44% to 73.85%.
• Fire went from 63.78% to 62.79%.

Here are the accounting numbers for the five city pension funds:

Money Coming In for FY-2015

(in millions)	Five Funds	NYCERS	TRS	BERS	Police	Fire
employee contributions	$1,015.0	$467.1	$158.6	$39.6	$241.1	$108.6
employer contributions	$9,986.8	$3,160.3	$3,270.0	$258.1	$2,309.6	$988.8
other contributions	$55.5		$55.5
interest	$1,939.5	$635.7	$758.5	$36.9	$392.8	$115.6
dividends	$2,661.8	$795.3	$889.2	$46.2	$703.7	$227.4
SL income	$72.5	$26.5	$20.3	$2.7	$18.0	$5.0
other	($64.9)	$4.1	$0.3	($115.1)	$4.6	$41.2
Cash-in	$15,666.2	$5,089.0	$5,152.4	$268.4	$3,669.8	$1,486.6

Money Going Out for FY-2015

(in millions)	Five Funds	NYCERS	TRS	BERS	Police	Fire
Benefits	$11,994.1	$4,235.6	$4,024.3	$223.2	$2,360.5	$1,150.5
Transfers from TRS & BERS to TDA	$1,294.0	$0.0	$1,249.0	$45.0	$0.0	$0.0
Payments to VSF *	$12.2	$11.9	$0.0	$0.0	$0.3	$0.0
Transfers (Pension to VSF) *	$660.0	$30.0	$0.0	$0.0	$590.0	$40.0
Investment expenses *	$705.0	$231.8	$203.0	$10.1	$192.1	$68.0
Admin expenses *	$141.9	$54.6	$58.4	$11.0	$17.9	$0.0
other	$7.1	$7.1	$0.0	$0.0	$0.0	$0.0
Cash-out *	$14,814.3	$4,571.5	$5,534.7	$289.3	$3,160.8	$1,258.5
*
Net Cash *	$851.9	$517.5	($382.3)	($20.9)	$509.0	$228.1

Closing Balances & Asset Increases for FY-2015

(in millions)	Five Funds	NYCERS	TRS	BERS	Police	Fire
Open Bal:	$144,538.0	$54,422.0	$44,490.0	$3,279.3	$31,750.9	$10,595.8
Close Bal	$145,674.8	$54,889.3	$44,254.7	$3,359.8	$32,356.0	$10,815.0
Net Change	$1,136.80	$467.30	($235.30)	$80.50	$605.10	$219.20
Cash Flow:	$851.9	$517.5	($382.3)	($20.9)	$509.0	$228.1
Open Bal Adj:	$144,538.0	$54,422.0	$44,107.7 $3	,258.4	$31,750.9	$10,595.8
Close Bal Adj:	$144,823.4	$54,371.8	$44,254.7	$3,359.8	$31,847.0	$10,586.9
Net Change Adj:	$285.4	($50.2)	$147.0	$101.4	$96.1	($8.9)
Rate of Asset Increase:	0.197%	-0.092%	0.333%	3.112%	0.303%	-0.084%

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.

My Wife Resigned from NYCERS in May of this Year

In May of this year my wife resigned from NYCERS about two years shy of the date she would have been able to retire. She started working at NYCERS in the fall of 1998. In December of 2003, she was promoted to Deputy Director of Administration by Milt Aron, the Deputy Executive Director.

Prior to that, starting in 1980, she worked at the Mayor’s Office, the Sheriff’s Office, and the Department of Homeless Services.

In June, 2005 she was demoted by Aron with the explicit approval of Martha Stark, Chair of the NYCERS Board of Trustees and the Finance Commissioner. She was demoted because of her relationship with me. She was forced back to her permanent civil service position and her salary was reduced by $14,000, the amount that she had been given when she was promoted.

From June of 2005 to May of 2015 my wife was given no work. She was told many times that there were strict orders from the executive staff that she was not to be given any work. Many times over the ten years she explicitly asked for work.

On a few rare occasions she was given some significant work but the minute the executive staff became aware of it, the work was stopped. Kin Mak could always be counted on to pass the word along to Karen Mazza about the work assignment.

In 2013 my wife was hospitalized for 12 days with acute ulcerative colitis.

In 2014, while driving to church on Palm Sunday, she had a major heart attack. She almost died on the side of the road. It was incredibly fortunate that she was at a stop sign and that her 16 year old daughter was with her in the car. The EMT’s were there in minutes and were able revive her with a defibrillator. She spent 18 days in the hospital. She was on reduced body temperature protocol for possible brain damage. She had double bypass surgery and another procedure for a defibrillator implant.

Both of these illnesses were directly caused by stress.

After both of these hospital events she returned to work. Both times she asked for work and both times NYCERS executive staff refused to assign her any work.

In the spring of 2015 the stress of being totally marginalized at NYCERS finally became too much of a threat to her health. She reluctantly resigned. At that point her salary was $104,000.

For many years now, I have been writing about the wretched way that NYCERS, and I mean D'Allesandro, Mazza, and Baksh/Ramsami, have treated members, retirees and NYCERS employees. I speak from personal experience.

You can understand why people lie, cheat, and steal for their own personal gain but to be just plain nasty for no good reason is despicable. The only thing I can come up with is that they are so incompetent they think they have to kick every one under them to hide their own failures. Maybe City Hall and the new NYCERS Chair will get tired of them like the previous mayor did with Martha Stark.