Mayor Michael Bloomberg and Comptroller John Liu are claiming to have made a deal of “historic” proportions for taxpayers by striking a deal to merge investment authority of the city’s five pension funds under the control of a single independent central management board, with full-time staff led by a newly-created Chief Investment Officer, who would reportedly be paid at a similar level to private investment managers.
The five funds, the Employees’ Retirement System (NYCERS), the Teachers’ Retirement System (TRS), the Police Pension Fund, the Fire Department Pension Fund, and the Board of Education Retirement System (BERS), will retain their current boards for internal management issues, but will defer to the new board for investment management.
This deal is supposed to save the city over $1 billion a year by boosting investment performance by 1 to 2 percent annually. Meanwhile, the cost of the entire pension system has ballooned over the last 10 years from $1.5 billion to over $7 billion, and are projected to devour fully 20 percent of all New York City revenue in 2012.
Liu and all the major labor leaders are hailing the deal as the solution to the problem of rising pension costs. It may marginally improve the situation, but if Liu and all the power players in Big Labor are calling this a solution, you can be sure it’s at best a stop-gap measure that doesn’t come close to addressing the real problems in our retirement system.
For one thing, there are no guarantees that the funds will perform any better under the new managers than it does under the current investment managers. There have been no major complaints about the performance of the fund, and Liu testified back in February that the funds had a combined 16 percent return for the six month period that ended on December 31, 2010. That was up from 14 percent for the first half of 2010, and during a time of lackluster overall market performance.
Meanwhile, to his credit, Bloomberg has repeatedly proposed real reforms to the pension system, such as raising the retirement age, requiring increased contributions from new municipal employees, and eliminating the $12,000 pension bonus paid out to all uniformed workers upon retirement. Not to undervalue the contribution of these vital employees, but an additional $12,000 bonus hardly seems warranted when it costs the city $1 billion every year.
The fact is that the current system has exposed city taxpayers to a dangerous and unsustainable level of risk, and real, systemic reforms with tangible benefits, such as creating a 401k style system for new workers. Otherwise, we have only consolidated the deck chairs from five Titanics onto one massive sinking ship.
Robert Hornak is a Queens-based political consultant, blogger, and an active member of the Queens Republican Party.