Stringer: More N.Y. City Pension Tweaks in Store

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New York City Comptroller Scott Stringer says he and Mayor Bill de Blasio will reveal further tweaks to city's $161 billion pension system early in 2015.

"We're talking to the mayor to create a reform plan for early next year to tackle this issue," Stringer said in a Bond Buyer video interview.

"We've already begun an in-house reform plan and talking to the 58 trustees," he said. "Here's what I can't do. I can't do it by myself, so I have to work with all of our trustees and we're having those conversations."

Each of the five pension funds is financially independent, with its own board of trustees.

Stringer's comments come amid increased scrutiny of public pension systems in the city and nationwide. Last month, Stringer announced that the pension funds returned 17.4% in fiscal 2014, but critics argue that the pension funding gap is widening and that escalating costs and an unwieldy political structure are straining an already underfunded system.

"We have to align our five pension boards so that they can work faster and more efficiently," Stringer said in a wide-ranging interview that reviewed his first eight months as comptroller.

"I'm committed to bringing down fees that wealthy money managers charge us, bringing more investment in-house," he said. "Look at the way we're setting up the foundation to initiate reform and the reform we've already accomplished."

In June, the pension fund trustees signed off on a Stringer initiative to ban placement agents across all investment classes. Placement agents act as middlemen to connect asset managers and investors. Previously, the funds only prohibited them for private equity investments.

"I thought that was very significant," Stringer said. "We attacked that issue head on."

Use of placement agents was central to a pay-to-play scandal involving former city and New York State Comptroller Alan Hevesi, who pleaded guilty in 2010 to accepting nearly $1 million in benefits from financier Elliott Broidy in return for approving a $250 million investment in the firm from the state pension fund. Hevesi served 20 months in prison.

Stringer's ban was as part of a six-point overhaul of operations within the Bureau of Asset Management, which his office oversees. He announced the move shortly after succeeding John Liu in January. Goals, said Stringer, include better risk management and higher employee standards.

He also hired former TIAA-CREF executive Scott Evans as chief investment officer for the pension funds. Stringer, a former Manhattan borough president and state assemblyman, serves as the investment advisor, custodian and trustee of the pension funds.

The funds are the New York City Employees' Retirement System, the Teachers' Retirement System of the City of New York, the New York City Police Pension Fund Subchapter 2, police; New York City Fire Department Pension Fund Subchapter Two, fire; and the New York City Board of Education Retirement System.

On aggregate, Morningstar found the plans 60% funded, down from the 70% a year earlier in a report last November on pension plans in the nation's 25 most populous cities. Morningstar considered a funded ratio of less than 70% to be a red flag for potential credit risk.

The five plans, according to Morningstar, vary in funded ratios ranging from 48.2% for fire to 64.2% for the city ERS.

Moody's Investors Service cited "high and growing burden from debt service, pension and retiree health care costs" in its report that preceded the city's $980 million sale of general obligation bonds two weeks ago. Moody's rates the GOs Aa2. Fitch Ratings and Standard & Poor's rate them AA.

Stringer also cited other initiatives his office has undertaken this year.

"From an audit and investigative perspective, we've looked at those technology contracts that have bilked the city out of hundreds of millions of dollars," he said. Stringer issued Comptroller's Directive 31, the first such decree since 2005. "It's going to mandate that technology contractors have to do something radical … radical! … gonna have to submit timesheets, resumes, things that were never required before."

Other investigations have included the New York City Housing Authority and the Queens Public Library.

Last week, Brooklyn Magistrate James Orenstein, in a preliminary ruling, upheld the firing by de Blasio and Queens Borough President Melinda Katz of six Queens Library trustees who refuse to cooperate with Stringer's office. The comptroller said his audit, when complete, will "give the public a full picture of the library's finances and management."

Queens and Brooklyn library systems operate separately from the New York Public Library, which covers Manhattan, the Bronx and Staten Island.

Stringer has also tried to put a human face on his office.

"Look, people view the comptroller's office as like hundreds of people pushing pencils and doing audits from the municipal building across the street from City Hall. We've taken a much different, aggressive approach. How can you audit the Build-It-Back program and understand the impact of Hurricane Sandy unless you go directly to the people?"

His office held 12 hours of hearings on Sandy-ravaged neighborhoods including Staten Island, Breezy Point, the Rockaways and Coney Island, at which frustrated hurricane victims related horror stories about city bureaucracy in their attempts to secure funding through Build-It-Back, a city program to aid Sandy-affected homeowners.

One anecdote from Staten Island's Midland Beach neighborhood, in which a city worker told a homeowner, "When push comes to shove, we win and you lose," prompted a stunned Stringer to say "Wow … You can't make this stuff up."

Stringer believes there's still an urgency surrounding Sandy-related matters.

"We have to do better and we have to move quicker and I think that's not happening right now," he said.

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