Brad Lander, New York City Comptroller and fiduciary New York City Retirement Systems.
New York City's pension system for retired city workers is plagued by ballooning costs stemming from redundancies.
The cost to administer benefits to about 340,000 retirees and beneficiaries, has grown by more than 40% to about $270 million since 2018, according to an analysis of the funds' financial reports by Bloomberg. A member of the city audit committee brought attention to the funds' spending and inefficiencies at a recent meeting.
There's five retirement funds — one for teachers, non-teaching staff, police officers, firefighters and civil servants — and each have separate offices, staff and computer systems. And two of those funds are in the middle of multimillion-dollar technology upgrades.
New York pays employees out of one payroll system, but "as soon as they retire, we need five different systems to figure out how to pay them their pension benefit," said Bud Larson, a former senior city budget official who recommends streamlining operations, at a Jan. 23 city audit committee meeting. Created in 2009, the committee reviews financial statements and approves the city's hiring of auditors and actuaries.
In 2018, the city's Independent Budget Office estimated that consolidating the five pensions into three, could save $20 million in the first year, and then $41 million two years later. The police and firefighter funds, which have similar retirement plans, could merge into one system, IBO said in a report. And employees covered by the fund for school employees, like crossing guards and cafeteria workers, could be transferred to the civil servants' or teachers' pension.
Last month, New York City Comptroller's Brad Lander called on the state's Department of Financial Services to review the pension fund for schools' non-teaching staff, where spending has grown about 170% in five years. New York City's Board of Education Retirement System's $35 million budget exceeds the budget of the police pension, which has almost twice the membership. Thomas Sheppard, co-chair of BERS, didn't immediately respond to an email request for comment, while co-chair Donald Nesbit hung up the phone on a Bloomberg reporter.
Last year, the city contributed $9.6 billion to the funds, which have about $250 billion in assets. Employees contributed about $2.5 billion, according to the funds' financial statements.
The five funds, independent entities created by state law, have more than 1,100 employees who work out of their own offices. The teachers' pension, for instance, spends $8.6 million a year to rent space in a lower Manhattan tower that's owned by Alabama's retirement system. The police fund leases offices for $6.7 million in the Woolworth Building, a national landmark designed by Cass Gilbert.
While administration is a big contributor to costs, investment management remains the primary expense for pensions. Investment expenses rose to $1.5 billion for the year ending June 30. Those fees are deducted from pension contributions and earnings.
More than a decade ago, former New York City Mayor Michael Bloomberg, the majority owner of Bloomberg News parent Bloomberg LP, and then Comptroller John Liu proposed consolidating the investment management of the five pensions into a single independent investment board. Managing money internally would save the city $1 billion a year, they said. That proposal was pulled because some unions wouldn't be represented on the new board and individual pensions wanted to maintain control over investment decisions.
Mayor Eric Adams has championed efficiencies and promised to reduce bureaucratic bloat, but like previous administrations has to win over each pension's board to kick off any overhaul. Although the mayor and comptroller are members of the pension boards, power resides with trustees representing politically formidable public employee unions.
Elected officials "aren't too interested in upsetting the apple cart," said Mr. Larson, who as of Feb. 16 is no longer a member of the audit committee. "Unions like the fact they get to control something."
So rather than pursue a consolidation of pensions, which would require a change in state law, the funds could take gradual steps to spur efficiency, like centralizing tech operations, Mr. Larson added.
Deb Stewart, a spokesperson for the $80 billion civil servants pension, the New York City Employees' Retirement System, or NYCERS, declined to comment about any potential consolidation of tech or staff. The fund has already embarked on a $230 million upgrade of its 1980s-era mainframe computer system, spending about $40 million so far.
