(July 9, 2012) — An ambitious plan to overhaul the New York City pension system died quietly in the early hours of Saturday morning. It was one year old.
NYC Comptroller John Liu withdrew his plan to rationalize the governance structure of the city’s five pension funds under one collective management team, the New York Post reported. Liu floated the plan in 2011 as a way to cut costs for the five funds, together representing $110 billion in assets, and bring them under an apolitical board of technocrats.
New York City unions, seeing the reform as an assault on their ability to oversee investment decisions, pushed back against the plan. Without a sweetener such as increased collective bargaining rights, the unions had little reason to support the proposal, a source told Reuters. The proposal needed the assent of Albany, the New York state capitol, and, faced with intransigent union opposition, the reform had little chance of implementation. Liu’s decision to pull the plug on the reform was intended as an “olive branch” for the unions, according to the NY Post.
Though sharing a bitter personal enmity, Liu and New York City Mayor Michael Bloomberg both supported the plan, though they differed in the specifics. “We’re overhauling an antiquated pension management system that has needed restructuring for generations – depoliticizing the process, further professionalizing the staff and implementing industry best practices,” Bloomberg said in 2011, when he and Liu announced the proposal. Yet the mayor also desired to professionalize the investment side of the pension equation by bringing in private sector experts to help run the city’s pension money. Although Liu wanted to streamline New York’s pension systems and cut out unnecessary fees, he resisted what he felt was Bloomberg’s attempt to undercut his own position.
In March 2011, aiCIO took an in-depth look at the proposed reform and analyzed the New York City pension system. Well-placed sources called the city’s pension governance structure a “nightmare” and spoke of the inability of higher-ups to institute constructive change. As supporters of the reform have pointed out, there also exists great overlap in consulting contracts among the pension plans. Liu claimed that the city had hired 360 outside consultants at a cost of $470 million and that the reform would save money by eliminating unnecessary contracts.
At the same time, the animosity that the unions held for “Wall Street leeches” was acute. “Last I checked, there weren’t any cops or firefighters driving this country into financial ruin over the last couple of years,” fire officers’ union President Al Hagan told aiCIO. “It was exactly the kind of ‘professionals’ that the mayor pals around with and wants to give more influence to [that caused the crisis].”
Liu has not given up completely on reform. According to the NY Post, Liu increased the pension systems’ number of in-house investment staffers by 59%. Such a move could be accomplished without union or Albany approval.