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Report
Criticizes the City's Management of Its Pension Funds
By
Michael Cooper, the A new independent report commissioned by the The report suggests that the city's pension funds may be too reliant on stock investments, questions the management structure of the funds and urges the city to formally codify the goals and procedures at each of the city's five pension funds in written policies. The value of the five pension funds has shrunk to just under $74 billion in June from $105.6 billion in 2000 because of heavy investment losses, a state law forcing the funds to pay richer benefits, and salary increases for city workers, officials said. As a result, the city has had to increase drastically its annual contributions to the pension funds to keep them healthy for the future. Just three and a half years ago, the city projected that it would have to contribute $650 million to the pension funds this year; its actual contribution this year is expected to hit $2.4 billion. The city comptroller, William C. Thompson Jr., is the investment adviser to the city's pension funds and the custodian of their assets. The five funds, for five groups of city employees, are managed by separate boards of trustees. Last year, after Mr. Thompson took office, he commissioned an outside study of the management of the funds. The result is a roughly 400-page report by Independent Fiduciary Services, a financial consulting firm, that was released to trustees of the city's pension funds last week. The report cost $400,000, officials said. "We believe significant improvement can be achieved through the adoption of a comprehensive, well-documented governance framework," the report concluded, "including investment policy statements for each of the retirement systems, a strategic plan, a detailed governance statement, and a standard operating manual." The report noted that the city's pension funds were more heavily invested in American stocks, and in equities in general, than most public pension funds. About 70 percent of the funds is invested in equities, with about 30 percent in bonds. It found that the city's most recent studies determining what mix of investments to use were out of date and recommended that the city conduct more frequent studies. It urged the comptroller's office to advise the funds how much of their investments should be in passively managed index funds, which track part of the market, and how much should be actively managed. But it also found that some of the funds use an unusually high number of investment managers. The report took note of the difficulties faced by the comptroller's Bureau of Asset Management, which must advise and answer to the five pension boards, and which must compete to recruit talented people in the financial capital of the world without being able to match the salaries paid by firms in the private sector. It said that with billions of dollars in investments at stake, the bureau should tighten its ethics policy. Jeff Simmons, the press secretary for Mr. Thompson, said that several of the report's recommendations were already being put into place, including an asset allocation study. "What this report is saying is that things can be done better," he said. Copyright ©
2002 Global Action on Aging
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