NYC Mayor, Comptroller Seek Structural Overhaul of City's Five Pensions

(October 30, 2011) — New York City Mayor Michael Bloomberg has revealed aims to merge the investment management of the city’s five pension funds — representing the first major reform of pension investment structure in the city in roughly 70 years.

“The current structure — with five separate boards and five separate pension investment structures — was put in place in 1941. This is an historic, game-changing move for the city, since the overhaul would allow us to be more nimble in today’s markets,” Mike Loughran, Senior Press Officer at the Office of NYC Comptroller John C. Liu, told aiCIO, noting that the move is based on efforts to lower costs, improve decision-making, and enhance returns.

The agreement was announced by Bloomberg, City Comptroller John Liu, and labor leaders at a press conference at City Hall. The proposal delegates investment authority for all five pension funds to one newly created body authorized to hire an independent professional manager. According to a release by the Office of the Mayor, the plan — which needs the approval of the state Legislature in Albany — would form an independent investment board along with a chief investment officer position.

As stated by the release: “The proposal is intended to insulate management of pension assets from any political office, further professionalize it and make it more consistent with industry best practices. The proposal aims to increase investment returns, lower the City’s pension costs, protect and strengthen pensions for current and future retirees, enhance accountability and guard against the possibility of fraud and corruption. The City’s five pension funds currently have 58 trustees, each with a different weighted vote, who decide investment policy. No two systems are governed, managed or operated in the same manner, resulting in complexity, inconsistency and inefficiency.”

Comptroller Liu stated: “The City’s pension system dates back more than one-hundred and fifty years…This new paradigm will enable us to achieve better results in today’s more complex financial markets. Depoliticizing, professionalizing, and streamlining the management of our pension funds will enhance investment returns and reduce pension costs. Our labor leaders and trustees have delivered a huge win for taxpayers and City workers alike with this game-changer.”

As outlined in a statement, the major provisions of the investment reform proposal include the following:

1) The five New York City Pension Funds would delegate investment authority to a newly created pension investment board composed of City and labor representatives. The board would set strategic objectives and policy for the funds.

2) The Bureau of Asset Management would be moved out of the Comptroller’s Office and be re-established as an independent investment entity that will determine consultant and asset manager pools and manage certain asset classes in-house. The proposal calls for the investment entity to be staffed by experienced industry professionals and for compensation packages to attract those investment professionals.

3) A Chief Investment Officer will lead the new investment management entity. The Chief Investment Officer will report to the new pension investment board – not to any individual elected official – and will be appointed to a fixed term that will not coincide with citywide election cycles.

4) The new pension investment board and new investment staff will adopt best-in-class ethics, governance, training, and code of conduct policies and procedures to protect against fraud, waste and abuse.

aiCIO investigated New York City’s underfunded pension system in its Spring 2011 issue, revealing the tension between the Mayor and Comptroller.