December 23, 2011
By Marc Bussanich, LaborPress City Reporter
The year ’11 may be remembered as the year of public pensions’ demise or rebirth. The City’s Comptroller’s Office has proposed to streamline investment decisions of the City’s pension funds by creating a new investment board imparted with the responsibility of increasing returns and reducing management costs. But it’ll have some convincing to do as not all public union leaders like the proposal.
Greg Floyd, President of Teamsters Local 237, doesn’t like the proposal and how John Liu, the Comptroller, chose to roll out the plan on October 27, as the Mayor and six public union heads stood nearby. “He makes a major announcement on pension reform, but we’re still waiting for details almost two months later.”
The current system consists of five boards with 58 trustees, which Liu has said contributes to investment-decision delays because a decision has to be made multiple times. But Floyd noted that the different boards for each of the five funds were initially created because each one has different needs.
For example, the NYC Teachers’ Retirement System distributes higher pensions to teachers because they earn higher salaries, while the NYC Fire Department and Police Pension Funds distribute funds to members after 20 years of service. “They were created for a reason, not a political reason,” said Floyd, referring to Liu’s claim that the creation of a single board will depoliticize the decision-making.
Floyd also doesn’t like the proposal because he believes that neither Liu, nor anyone else, can change the markets. He claims that First Deputy Comptroller Eric Eve contradicted Mr. Liu’s statement that the proposed changes will contribute to higher investment returns when Mr. Eve said on November 15 at an investment meeting at NYCERS that the pension reforms would not generate an additional 1 or 2 percent of revenue.
Most upsetting to Floyd in the proposal is that the current boards will have to cede investment authority to a new board, setting up a possible situation where the chief investment officer will be empowered to choose his staff without any input or votes from labor representatives.
He pointed to the hiring of Ken Davis by Deputy Comptroller for Pensions Lawrence Schloss, who in turn was hired by Liu (both former executives of MF Global, the derivatives trading firm that just went belly up), as indisputable proof that public pension systems shouldn’t be run by private sector financial managers with questionable tenures.
Floyd believes that Liu’s pension reform proposal is nothing more than an attempt to cover up his own current political problems. “I don’t want the pension system scapegoated at the expense of his campaign finance problems,” referring to the ongoing federal investigation of Liu’s fund-raising.
In response to the allegations by Floyd, Liu’s senior press officer, Michael Loughran, simply said, “The facts speak for themselves. There is a broad coalition of labor, elected officials and business leaders who support this plan. The pension investment reforms will depoliticize the investment process, benefit the city’s pensioners and taxpayers and modernize a system that has operated the same way for 70 years.”
In addition to Floyd, TWU Local 100’s John Samuelsen said that he is opposed to the proposed changes because, without additional details, it’s questionable if the reforms would earn additional income. “It comes down to whether the public sector pensions are better served under the existing system or a system run by an asset management company investing in things like Greek debt.”
Samuelsen expressed astonishment that government officials are talking about degrading public sector pensions on one hand, and on the other want to use the pensions to finance a jobs program in New York such as the construction of a new Tappan Zee Bridge.
He’s not opposed to the idea of using public pensions to foster job creation, but insists there must be protections. “We’ve earned our pensions. There are transit workers putting their lives on the line for this City, and for City and State decision makers expecting that the TWU Local 100’s president is going to authorize the use of my members’ pensions while they’re under attack is wishful thinking because it’s not going to happen, ” said Samuelsen.
One of the protections he would seek is an absolute guarantee that the MTA and State will not push up transit workers’ retirement age from 55. “There’s a reason why the retirement age is 55. For bus operators and track workers to toil for 40 years in this system is ultimately a death sentence, as subway workers have to breathe in manganese, human excrement particulates and decomposing rats.”
A big concern for Samuelsen over the ceding of investment authority to a CIO is the possibility that a CIO and his/her staff wouldn’t make investments that are in lock-step with solid trade union principles. “There’s no guarantee that an asset management company executive who’s looking to make a quick buck to increase the pension money he’s overseeing will invest with labor’s conscience.”
Carol Kellerman, President of the Citizens Budget Commission, a non-profit watchdog of City and State fiscal affairs, said the organization has to yet analyze the impacts of the proposed pension reforms as details are lacking, but noted, “We endorse the idea of consolidating investments and saving over $100 million on management fees.”