Pensions

The New York Times: Unions Manipulate New York City's Public Pension Funds To Punish Their Enemies

Politicians divert "investments" to favored causes.

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The New York Times reported last week that New York City's pension funds were contributing $40 million to a new "affordable housing" investment pool and expecting to earn a paltry 2.75 percent return. Gotham's comptroller, Scott  Stringer (D), who oversees the city's pension funds and whose primary experience in business was running a failed bar-restaurant in Manhattan in the early 1990s, called this a "sound investment."

Ultimately, taxpayers are on the hook for pension fund shortfalls—next year the city will contribute $8 billion or 11% of its budget—so "investments" of this sort are just a covert way of diverting city cash to particular causes.

NYC Comptroller Scott Stringer (D) ||| William Alatriste/NYC Council
William Alatriste/NYC Council

Today, the grey lady has a blockbuster story that looks at how lawmakers, consultants, and public-employee unions use the city's pension funds to favor particular groups and punish their enemies. The teachers' union, which helps oversee the city's pension funds, "keeps a list of investment firms it sees as unacceptable because of their connections to groups that, say, favor charter schools." In 2010, pension fund trustees extracted an apology and retraction out of the private equity firm Blackstone, which does business with the system, after a company official offended them by remarking during an investment call that public-sector retirement benefits are "excessive." Comptroller Stringer is planning to invest $1 billion in firms led by minorities and women, the Times reports, even though such initiatives "make it harder to achieve top investment returns."

With pension funds devouring an ever-growing share of New York City's budget, the story looks at efficiencies that could stave off the inevitable crisis, such as consolidating five separate funds and replacing outside managers with city staffers. Here's a better idea: Switch all New York City public employees to 403(b)s, so they can decide how to invest their own nest eggs how they see fit—and bear the consequences.

Reason on Pensions.

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  1. whose primary experience in business was running a failed bar-restaurant in Manhattan in the early 1990s

    It’s not his fault that the customers didn’t know what’s good for them.

  2. If this were done in the private sector, it would be malfeasance.

    1. It’s malfeasance now. The difference is that the enforcers and the crooks live under the same (metaphorical) roof. That’s problem whenever you are dealing with public sector enforcement, which is another reason to keep the public sector as small as feasible.

      1. Better put: If this was in the public sector, there would be SEC investigations. Actual consequences. People would be fired. Fined. Possibly arrested. Banned from working in the investment community. In the public sector? Not so much.

        1. er, “if this was in the private sector”.

        2. Call me when the SEC begins forcing govt budget disclosures to utilize GAAP principles.

          It just doesn’t look so bright to have your balance sheet report $1.9 trillion in assets with $17.5 trillion in debts and another $137 trillion in unfunded liabilities.

          1. ^This

            It’s simply too easy to manipulate income and expenses under cash based accounting.

  3. such as consolidating five separate funds and replacing outside managers with city staffers.

    I laughed.

    1. I’d be curious to know what the management costs of the funds currently are.

      1. @2%

        1. The NY Times article is shocking.

      2. From NY Times:

        That inevitably leads to higher investment fees. In 1997, the city’s biggest fund, the New York City Employees’ Retirement System, known as Nycers, spent $17.3 million in investment fees for a $31.7 billion portfolio. By 2010, it was spending $175 million for a $35.4 billion portfolio.

        Actually, it looks like NYC was paying 5% in 2010. That’s not good as a percentage. I don’t think in-house management would make it better, though. Still, the point is to not let politics influence investing decisions.

  4. Switch all New York City public employees to 403(b)s, so they can decide how to invest their own nest eggs how they see fit?and bear the consequences.

    What!? And remove the ability to have corrupt and absolute power over your enemies? Remove the opportunity to have the rich and powerful fall to their knees to kiss your ring on your corpulent, tax-fattened hand? NEVER.

  5. Fiduciary duty? If I was a NYC public school teacher (with ethics), I would be pissed off.

    1. And should sue. Would make an excellent lead plaintiff in a class action suit.

  6. Here’s a better idea: Switch all New York City public employees to 403(b)s, so they can decide how to invest their own nest eggs how they see fit?and bear the consequences.

    HA! They can tell us how to live, but they could not possibly be expected to make such important decisions on their own!!!!!

  7. bear the consequences

    That’s cute, Epstein.

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