New York City Mayor Michael Bloomberg and Comptroller John Liu on Thursday announced an agreement in principle to overhaul the management of the city’s five pension funds totaling $120 billion and place a chief investment officer and a singular pension board in charge.

“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,” Liu said.

Bloomberg, Liu and union leaders touted the proposal at a City Hall news conference. “We’re overhauling an antiquated pension management system that has needed restructuring for generations,” the mayor said.

The proposal, according to Liu, aims to increase investment returns, lower the city’s pension costs, protect and strengthen pensions for current and future retirees, and enhance accountability.

The city’s pension systems consist of the New York City Police Pension Fund, the New York City Fire Department Pension Fund, the New York City Teachers’ Retirement System, the New York City Employees’ Retirement System, and the Board of Education Retirement System.

Moody’s Investor’s Service rates the city’s general obligation bonds Aa2, while Fitch Ratings and Standard & Poor’s each rate them  an equivalent AA.

The New York State Legislature must approve the changes. Representatives from Bloomberg and Liu’s offices and organized labor will collaborate to finalize the proposal, according to the statement.

The proposal also unites Bloomberg and Liu, who have disagreed in the past over city pension issues. The mayor has spoken about rising pension fund costs, while the comptroller has issued reports that are more optimistic.

Under the proposal, the five funds would delegate investment authority to a new pension investment board consisting of city and labor representatives. The board would set strategic objectives and policy for the funds.

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.

A chief investment officer will lead the new investment management entity. He or she will report to the new pension investment board — not to any individual elected official — and will serve a fixed term unrelated to citywide election cycles.

Columbia Business School professor Andrew Ang said in a statement that the changes would mean significant returns “by actions as simple as bringing in-house and managing cheaply what had been previously outsourced at much higher costs.”

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