THE GOLDEN GOOSE - NY PENSION FUNDS
There was an interesting article in the NY Post on December 15, 2001, page 11
Post Correspondent Kenneth Lovett wrote how after years of robust gains, the state's pension fund took a dive the past
fiscal year, losing nearly $15 BILLION of its value, Comptroller Carl McCall announced. Last year, the NYC pension fund was valued at an all-time high of $127 BILLION DOLLARS!
The fund is currently valued at about $112 BILLION.
Mr. McCall was the pension system's sole administrator. He did a commendable job in that role. He was defeated in his bid for governor
of the State of New York, however, he should be credited for protecting the pension funds of thousands of retirees.
During his term of service as the Comptroller of the State of New York, he fulfilled his fiduciary duty as custodian of our pension monies.
One only has to consider the disgraceful conduct of some of our
leading "captains of industry" whose avarice and thirst for personal power have destroyed the retirements of thousands of Americans. Those who lost their savings had no Carl McCall to guard their
life savings. They relied on those in the private sector whose only mantra was "the bottom line" of profits for speculators. The millions of Americans who flooded the securities industry with
billions of dollars in the stock market "bubble" weren't warned about "price to earnings ratios" or the uncomfortable possibilities of margin calls. Many professional market advisors didn't
educate the wide-eyed amateur investors about "selling short" during downturns in the market.
So a lot of Americans got hurt financially. Many of them will never return as investors in the stock market. For many of them, it is already too late. They are beyond recovering from their losses.
Now Carl McCall has returned to private life. New York State and New York City have announced enormous budget deficits and draconian measures have been suggested.
One get the feeling of "deja-vu" with memories of the fiscal crisis that gripped NYC back in 1975. We all remember the lay-offs of over 5,000 of our fellow police officers. I wrote a story about the times.
Many of us in retirement have not forgotten those years.
Not to worry, the fund is still up 11% over the past five years.
Sorry guys, but as a citizen of the City of New York, and a retiree of the NYPD, I AM WORRIED. Why am I worried? Aren't the pension funds safe? Aren't they always invested properly with the best of returns for the retirees?
Well, boys and girls, I don't want to be an alarmist, but I do think that all city and state employees and especially retirees had better start educating themselves about how the pension funds are
safeguarded. One only has to read the following article from the NY Times issue of July 26, 2002 to see what can happen to pension funds:
July 26, 2002
Pension Funds in New Jersey Face Shortfall
By LAURA MANSNERUS
TRENTON, July 25 — Just as New Jersey has patched up its worst fiscal mess ever, the state is staring at another: next year an enormous payment for its shrinking pension funds will come due.
The total will approach $1 billion, by the estimates of some state officials and consultants, most of it in new spending. John E. McCormac, the state treasurer, said the shortfall would be "much
worse" than he expected just a few months ago, although he said he would not know what new contributions would be needed until the most recent investment returns were analyzed.
Soon, Mr. McCormac said,
the state will be able to calculate the damage done so far by a bold plan in the 1990's that borrowed money to finance the funds with stock market profits.
The dismay and blame surrounding the pension funds
are directed mostly at former Gov. Christie Whitman, who now more than ever is accused of mortgaging the state's future to pay for the tax cuts that propelled her to national prominence.
what's going on in the business world is bad?" said Judith C. Cambria, a fiscal policy specialist who wrote a report on the state's fiscal trends over the last decade. "The last administration used every
trick in the book."
While criticisms of her administration have mounted with New Jersey's escalating budget problems, Mrs. Whitman has continued to defend her fiscal management.
"So much of it has gotten personal," she said in a recent interview with The New York Times.
At a time when the New York State and City is claiming to be financially strapped due to a
downturn in the economy, you can rest assured that there are those in government who salivate at the thought of tapping into the golden goose of the pension system.
Would that not be a painless way to finance the damage done to the city as a result of the WTC disaster? Should not the members of those pension systems be delighted to make their contribution to the rebuilding of the City of New York?
The well-managed funds had been so successful, that some of them had become self-funding. The citizens of the City of New York no longer had to have their tax dollars go into the funds.
The NYPD system was so well managed that a "defined benefit" formerly called the "variable supplement fund" is paid to retirees as well as the basic retirement benefits. This is the happy result of well-managed pension funds. Inflation is the silent thief of pensions. The erosion of purchasing power that inflation is a fact of life. The "defined benefit" attenuates the effects of inflation on the pensions of retirees. It is also a just reward to our police officers for their service to the City of New York.
The City of New York has recently changed the law to allow active members of the NYPD who have reached retirement age, to remain on the job and bank their "defined benefit" for each year that
they serve on active duty beyond their retirement. For example, those who chose to stay five years would receive over $50,000 in retroactive "defined benefits" at
the time of their retirement.
There are some unanswered questions however. For instance, those who retire on accidental or ordinary disability are not eligible for such monies. Would such retirees be deprived of their banked funds? You can bet the farm that there will be many court decisions in future years.
The billions of dollars in the pension funds are a tempting and easy source of revenue to finance programs that are politically advantageous. We are now in uncharted waters. An easy way to
finance contracts with active line organizations would be to place the burden of such costs on the retirees.
Recent suggestions have been made to have active and retired members pay a portion of their health benefits. For example, active members would be assessed 10 % and retirees would be assessed 50 % of such costs. Since retirees would have no say in such negotiations, their protests would have little effect. In effect, the health benefits of such retirees would come from pension monies that they receive. That would be another example of indirectly tapping into the pension monies to pay for ongoing city contracts. Such moves would also have the political advantage of creating a division among active and retired members and thereby weaken any faction that could develop among these groups. It is a well-known fact that there are over 40,000 retirees and that number will grow larger with each passing year.
So why am I worried?
If we apply "Murphy's Law" to the financial condition of the City of New York, there is cause for concern. It history is any lesson for us, how will the "captains of industry" deal with the financial problems of New York? Where will they look for the capital to rebuild the economy? Let's look at the record of how the pension funds of private industry was sacrificed in the mania of mergers and acquisitions of the preceding two decades. For many unfortunate workers in the private sector, there will never be a secure pension. Many of them saw their pensions destroyed. The collapse of corporate giants such as ENRON and WORLDCOM is a frightening exposure of the performance of many of our "captains of industry". It is
ironic that just prior to the collapse of the stock market, many congressional leaders were strongly recommending that Social Security be privatized to enable those funds to be invested in the stock market!
To best educate yourself about how corporations raided their pension funds, read the book
"America, What Went Wrong" by Donald L. Barlett and James B. Steele.
The authors are investigative reporters with the Philadelphia Inquirer. There are many in the corporate world that would like this book to be ignored. It was first published in 1992 and the authors have since written follow-up books such as "America: Who Really Pays the Taxes?" published in 1994, and finally "America: Who Stole the Dream?" published in 1996.
Copyright © 2002 Edward D. Reuss
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