Potential savings: $2 billion
Pension investment reform
During a Nov. 9 visit to District Council 37, New York City Comptroller John C. Liu discussed the proposal for the joint management of the investments of the city's five pension plans with the union's executive board. On his left are DC 37 Executive Director Lillian Roberts and
DC 37 President Eddie Rodriguez.
By GREGORY N. HEIRES
Investment management for the city's five pension systems would be coordinated under an agreement announced Oct. 27 by Mayor Michael R. Bloomberg, City Comptroller John C. Liu and municipal unions.
A new pension investment board would oversee the investments of the funds, which currently manage investments separately with their own boards and consultants.
Coordinating portfolio management is expected to improve pension system earnings by up to $2 billion a year, relieving pressure on the city budget.
The agreement in principle on the plan means many details will have to be worked out before a final proposal goes before the state Legislature. The accord does not indicate that Bloomberg has given up on his goal of shrinking pension benefits.
"This new paradigm will let us achieve better results in today's more complex financial markets," Liu said. "Depoliticizing, professionalizing, and streamlining the management of our pension funds will enhance investment returns and reduce costs. Our labor leaders and trustees have delivered a huge win for taxpayers and city workers alike."
Higher earnings without benefit cuts
Currently, the comptroller is the custodian and investment adviser of the five pension systems. The new board of city and labor representatives would choose a professional chief investment officer, who would be paid the going rate to attract top talent.
Policy analysts say the "pay-to-play" pension investment scandal that led to the recent conviction of former State Comptroller Alan Hevesi indicates one reason for not having an elected official handle the investments.
"Creating an investment board is a win-win situation for taxpayers and the participants in the retirement system," said DC 37 Executive Director Lillian Roberts at the Oct. 27 news conference. The reform plan would increase investment returns without reducing workers' benefits, Roberts said.
Liu, who initiated the pension reform, said that municipalities that have adopted similar governing structures have seen investment gains of 1 to 2 percent. For the city, whose five funds have combined assets of $120 billion, those extra returns would add up to $1 billion to $2 billion, Liu said.
Today, the five pension boards include 58 trustees, representing the mayor, comptroller and unions; the new board would likely have 12 trustees.
By bringing investment decisions in-house and coordinating management, the plan should improve accountability and avoid inefficiencies and inconsistencies in the existing structure.
Investing today "is like turning the Queen Mary around in the Hudson River," said Firefighters President Steven Cassidy. Decision making can take so long that the funds tend not to take advantage of changing market conditions.
Almost all DC 37 members are in the New York City Employees Retirement System, with many in the public schools covered by the Board of Education Retirement System, while Teachers, Firefighters and Police Officers have their own funds. The funds' assets would remain separate and each would continue to administer its own benefits.
— Public Employee Press, Dec. 2011-Jan. 2012