Too Much Money for One Man
By EDWARD V. REGAN
NEW YORK’S $140 billion pension plan is one of the largest pools of money in the world. But there is something else that makes it exceptional: it is run by just one person. The state comptroller, who is elected, is the sole trustee.
In contrast, the overwhelming majority of pension funds nationwide — the ones for state and local governments as well as for corporations — follow a principle of “separation of powers”: they have boards that advise the pension funds’ executives and hold them accountable for performance.
The unusual nature of New York State’s pension governance helps explain why one of my successors, Alan G. Hevesi, was able to use the fund for his own purposes. In October, he pleaded guilty to steering millions of dollars in state pension money to an investment firm in return for kickbacks and campaign funds.
A board of directors would bolster the integrity of New York’s pension fund. When Andrew M. Cuomo was attorney general, he argued for creating just such a board. Now that he is governor, he should take the issue up again, and include it within the “comprehensive pension reform package” he promised last month.
In the 1980s, when I was the comptroller, I proposed legislation calling for a small board of investment experts for the pension fund, representing local governments and active and retired state government workers. Within weeks of its introduction, however, the bill was the subject of amendments intended to grant additional seats to favored interest groups. So I withdrew my support.
The lesson I learned is that the only way to avoid creating a cumbersome board with special-interest seats is to spell out in the State Constitution how a pension board would be set up. That would ensure that the membership could not be enlarged, and thereby diluted, and that the comptroller would be made fully accountable to the board.
The board of pension trustees should have five members, with the comptroller as chairman.
Three members would be appointed by the comptroller from lists submitted by unions, local governments and retirees and would have to have investment experience. The fifth member, with experience managing major fund assets, would be appointed directly by the comptroller. The State Senate would confirm the nominees.
The board’s agenda would be vast. It would want to look at the pension system’s accounting and financing. It would have to make comparisons with the pension funds of other states and of corporations. And it would have to analyze federal laws and policies, new pension-fund standards being developed by federal regulators and the fiduciary duties of both the board and the comptroller.
A board would add immensely to transparency. Pension increases are granted by elected officials to public employees through the give-and-take of collective bargaining. We need to know if what the employees give up is equivalent to what they gain in pension benefits. Given that politicians naturally seek the votes of union members, their negotiations must occur under public scrutiny.
There are two ways to create such a board in the State Constitution. The Legislature could vote, in two sessions separated by an intervening election, to place a constitutional amendment on the ballot. Or the Legislature could place on the ballot a question to call a constitutional convention. Every 20 years, such a question is automatically on the ballot, and in November 2017 the citizens will be able to vote on it. If the lawmakers don’t act to address pension governance, the citizens should. The future of the state’s finances demands it.
In contrast, the overwhelming majority of pension funds nationwide — the ones for state and local governments as well as for corporations — follow a principle of “separation of powers”: they have boards that advise the pension funds’ executives and hold them accountable for performance.
The unusual nature of New York State’s pension governance helps explain why one of my successors, Alan G. Hevesi, was able to use the fund for his own purposes. In October, he pleaded guilty to steering millions of dollars in state pension money to an investment firm in return for kickbacks and campaign funds.
A board of directors would bolster the integrity of New York’s pension fund. When Andrew M. Cuomo was attorney general, he argued for creating just such a board. Now that he is governor, he should take the issue up again, and include it within the “comprehensive pension reform package” he promised last month.
In the 1980s, when I was the comptroller, I proposed legislation calling for a small board of investment experts for the pension fund, representing local governments and active and retired state government workers. Within weeks of its introduction, however, the bill was the subject of amendments intended to grant additional seats to favored interest groups. So I withdrew my support.
The lesson I learned is that the only way to avoid creating a cumbersome board with special-interest seats is to spell out in the State Constitution how a pension board would be set up. That would ensure that the membership could not be enlarged, and thereby diluted, and that the comptroller would be made fully accountable to the board.
The board of pension trustees should have five members, with the comptroller as chairman.
Three members would be appointed by the comptroller from lists submitted by unions, local governments and retirees and would have to have investment experience. The fifth member, with experience managing major fund assets, would be appointed directly by the comptroller. The State Senate would confirm the nominees.
The board’s agenda would be vast. It would want to look at the pension system’s accounting and financing. It would have to make comparisons with the pension funds of other states and of corporations. And it would have to analyze federal laws and policies, new pension-fund standards being developed by federal regulators and the fiduciary duties of both the board and the comptroller.
A board would add immensely to transparency. Pension increases are granted by elected officials to public employees through the give-and-take of collective bargaining. We need to know if what the employees give up is equivalent to what they gain in pension benefits. Given that politicians naturally seek the votes of union members, their negotiations must occur under public scrutiny.
There are two ways to create such a board in the State Constitution. The Legislature could vote, in two sessions separated by an intervening election, to place a constitutional amendment on the ballot. Or the Legislature could place on the ballot a question to call a constitutional convention. Every 20 years, such a question is automatically on the ballot, and in November 2017 the citizens will be able to vote on it. If the lawmakers don’t act to address pension governance, the citizens should. The future of the state’s finances demands it.
