NY State Pension Trustee Calls 401(k) Plans 'Woefully Inadequate,' Defends DB

(December 14, 2011) — In a wide-ranging discussion of the New York public pension system, Thomas DiNapoli, the state’s comptroller and sole trustee of the $133.8 billion New York State Common Retirement Fund (CRF), defended defined benefit (DB) plans. 

Defined contribution plans, the comptroller said, are not adequate to replace defined benefit plans. “The reality is that 401(k)s were never intended to take the place of pensions,” DiNapoli said in a speech held on December 12 at the New School’s Schwartz Center for Economic Policy Analysis in New York City.

He continued: “According to Boston College’s Center for Retirement Research, 401(k) plans lost a collective $1 trillion during the Great Recession.”

According to DiNapoli, recent market turbulence is a reminder of the “inherent instability of 401(k)s and how daunting it can be for individuals with 401(k)s to navigate their way to a secure retirement…If that’s not enough of a reason to be wary of moving from pensions to 401(k)s, according to the National Institute on Retirement Security, defined benefit plans cost 46% less than individual 401(k) style savings accounts”

DiNapoli’s speech comes after he announced in October that CRF allocated $300 million to Artemis Real Estate Partners as its initial investment in a new emerging manager component of the Fund’s real estate portfolio. “I am proud to announce the Fund’s investment with Artemis Real Estate Partners to kick off our real estate asset class emerging managers program,” DiNapoli said in a statement. “With the emerging manager program now in place across our asset classes, the Fund has affirmed its status as an innovator in the field and shown once again its commitment to enhancing diversity and opportunity while improving its bottom line. The Fund has a strong historic track record of developing relationships with successful financial managers of the future.”

In June, DiNapoli proposed legislation to codify his ban on the involvement of placement agents, paid intermediaries and registered lobbyists in investments with CRF.

CRF became the first public pension fund in the nation to ban placement agents when DiNapoli issued his Executive Order in April 2009.

“Since I took office, we’ve worked to implement reforms that will help restore integrity and trust in this office and the pension fund,” DiNapoli said in a release. “Banning placement agents and lobbyists from involvement in investments was a big step. Now it’s time to make that ban a permanent part of New York State law.”

In his speech this week at the New School’s Schwartz Center for Economic Policy Analysis, he reiterated his efforts to address the misdeeds of the previous administration, asserting: 

“When I became Comptroller in 2007, I inherited a mess. My predecessor is currently serving a prison sentence for corruption in connection with mismanagement of the Pension Fund. From my first day in office, I made it my top priority to restore ethics and integrity to the Pension Fund’s management. Over the past few years, we’ve instituted substantive changes that have strengthened the Fund, putting more eyes and more scrutiny on the investment transactions we make.”

As outlined by the comptroller, these reforms include:

1) Banning the involvement of placement agents, paid intermediaries and lobbyists in any investment transaction and putting an end to pay-to-play campaign contributions;

2) Reporting investment performance results quarterly and releasing all Fund transactions to the public every month, and;

3) Creating the positions of Inspector General and Special Counsel for Ethics, and assembling a Pension Integrity Unit to identify and prevent pension errors, fraud and abuse.