Bad Apple: New ACCF Report Finds New York City's Public Pension Fund System in Bad Shape and Getting Worse

WASHINGTON, Jan. 11, 2018 /PRNewswire-USNewswire/ — On the heels of New York City’s push to divest its investments in fossil fuels, a new report finds politicized investment decisions are a recurring example of the city comptroller advancing social causes over financial results.

In Volume Two of its “Point of No Returns” series, the American Council for Capital Formation (ACCF) takes a closer look at how the five public-sector pension funds that collectively comprise the New York City Retirement Systems got in the shape they’re in today – and how taxpayers are ultimately the ones who will bail-out the program if it cannot meet its future obligations. The report also examines the role that politics continues to play in how fund beneficiaries’ money is being invested.

“Divestment is just one example of politics taking precedence over returns for New York City beneficiaries. Fund managers responsible for the pension-fund system of New York City routinely invest in things that have no reasonable expectation to yield acceptable returns for investors,” said Tim Doyle, ACCF’s executive vice president and general counsel, and author of the report. “We concur with previous reports on the role that poor management has played in growing the unfunded gap, as well as how the use of certain accounting tactics has allowed fund managers and the comptroller to shield from public view the true consequences of their mismanagement.”

Today, four out of every five taxpayer-dollars collected by New York City’s personal income tax are spent paying down the city’s public pension fund system’s liabilities, a 567 percent increase over the past 15 years. The city’s budget will soon allocate more spending on pension costs than on social services (excluding education). At the same time, the funds’ liability ratio continues to grow more severe by the day: while “official” reports estimate the funds to be merely $56 billion in the red today, other analyses based on more realistic projections of future returns point to an actual funding gap more than double the official figure.           

ACCF also finds three of the 10 worst performing NYCERS private equity funds this year were focused on supporting Environment, Social and Governance (ESG) ventures. 12 percent of the funds’ assets ($22 billion) are also invested in a group called the “Developed Environmental Activist” asset class, which has underperformed overall funds’ returns by an average of 600 basis points over the last three calendar years for which full data are available.

Scott Stringer, the city comptroller and the funds’ primary custodian, has now announced plans to divest New York City’s two largest pension funds, irrespective of the potential for weaker fund performance. Just last week, the state of New York’s comptroller, Thomas DiNapoli, said the public pension funds he controls have “no plans” to divest, citing his fiduciary responsibilities to pension holders. An analysis commissioned by the Suffolk County (N.Y.) Association of Municipal Employees found divesting from energy companies could cost the state pension funds more than $3 billion in lost returns over 20 years. Previous economic reports estimate divestment would cost the city up to $1.5 trillion over a 50-year timeframe and up to $120 million annually.

While the New York City retirement systems remains grossly underfunded, the city comptroller continues to devote a disproportionate amount of official resources toward undermining many of the funds’ own portfolio companies through the near-constant filing of various shareholder proposals. In fact, the number of proposals submitted by his office has almost doubled over the past three years, vaulting the New York City Retirement Systems onto the top-10 list of most prolific sponsors of such resolutions anywhere in the country.  Read more at ACCFcorpgov.com.

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SOURCE American Council for Capital Formation