No elected official in the country has more oversight over more public pension
dollars than Comptroller Thomas DiNapoli, the sole trustee of New York State's $150 billion Common Retirement Fund, which feeds the 638,000-member New York State and Local Retirement System (NYSLRS). And no official has done more to relentlessly defend and promote the public pension status quo.
Last night, DiNapoli appeared at the New School in Manhattan to deliver what his office billed as a "A Vision for
the Future of Retirement Security in New York." Unfortunately, the
comptroller's vision of the future looks an awful lot like the past. He
sounded many familiar talking points -- for example, misleadingly citing the low figures for average
pension payments to all former public employees, including those retired for many years or barely vested in the first place, rather than the much higher totals for benefits collected by employees who recently retired (often in their 50s) after full careers on the public payroll.
As DiNapoli noted, the private-sector has turned increasingly to the defined-contribution model, principally the 401(k) -- and the average 401(k) accumulation is pitifully small, and many funds also charge high management fees while delivery low returns. This is something of a straw man: no one proposing a DC approach in the public-sector would hold out the average small business 401(k) as an ideal alternative. And while DiNapoli cited an estimate that 401(k) plans collectively lost $1 trillion during the recession, he didn't mention that his own fund lost $40 billion in fiscal 2007-08 alone. Nor did he acknowledge that during the four years since he became comptroller, a period in which NYSLRS counted on earning 7.5 to 8 percent, its returns have averaged 2.2 percent -- which is why the taxpayers are being forced to kick in much more.
Although the comptroller is above all a financial officer, with direct oversight of the nation's third largest public pension fund, he ignored the principal criticism of public pension systems from a financial perspective.
Consider the issue of the discount rate used to estimate future pension liabilities, which has been discussed extensively on this site and in many other public and online forums across the country. Private and public sector pension plans both invest heavily in equities in hopes of realizing high long-term returns, typically 7.5 to 8 percent. Private plans, however, discount their liabilities using the interest rate on low-risk investments, such as AAA-rated corporate bonds, which means they must put more money aside to fully fund their future obligations. Public plans discount their liabilities based on what they hope their assets will earn, reducing the amount taxpayers must pay into the funds. When asset returns are lousy -- as they have been for the past decade -- taxpayers must pick up the slack with much higher contributions.
A growing number of independent academics, actuaries, economists and other analysts who have studied this issue (including the Congressional Budget Office) have concluded that public funds are doing it the wrong way. This means DiNapoli and other trustees are systematically undervaluing their liabilities -- which, in turn, undermines the comptroller's contention that public pensions are inexpensive for employers. The Government Accounting Standards Board (GASB) recently issued new proposed rules to address some of the criticisms of the current approach, but GASB's approach in turn has been criticized by both sides in the debate.
So, what did the comptroller have to say about this raging controversy?
Nothing.
In DiNapoli's 10 pages of prepared remarks (not posted online by his office), the word "liability" appeared onlyonce twice, in
this sentence: "We must change the perception of pensions being viewed
primarily as a liability and a cost to taxpayers to what they really
are: a pre-funding of a legitimate, looming government liability and
societal obligation."
But of all senior state officials, the comptroller should care least about "perception." His duty is to confront and manage the financial realities that everyone else in Albany would prefer to ignore. If New York's CFO and sole pension fund trustee prefers not to think of pensions mainly as a "liability," then who in the world will?
DiNapoli also remains oblivious to the implications of his own policies. At the New School, he boasted, not for the first time, that "unlike some states that have skipped their annual payments --- sometimes for years -- New York State has never missed a payment."
In fact, while New York (unlike, say, New Jersey) has not skipped pension contributions, it has deliberately underpaid -- with the active connivance of the comptroller himself, as explained here and here. Over the last two years, the state has "amortized" (i.e., stretched out, over 10 years) $824 million in pension contributions, and the Cuomo administration plans to defer $2.7 billion more in similar fashion over next three years..
DiNapoli's continuing refusal to engage in discussion of key concerns about public pension funding stands in contrast to the clear-eyed approach of his fellow Democrat, Rhode Island General Treasurer Gina Raimondo, who issued this "Truth in Numbers" report as the analytical foundation for a set of recently enacted pension reforms in her state.
To be sure, Rhode Island's pension funds are in much, much worse shape than New York's. But if Rhode Island had elected a treasurer with DiNapoli's approach, it would now be on the road to bankruptcy instead of reform.
As DiNapoli noted, the private-sector has turned increasingly to the defined-contribution model, principally the 401(k) -- and the average 401(k) accumulation is pitifully small, and many funds also charge high management fees while delivery low returns. This is something of a straw man: no one proposing a DC approach in the public-sector would hold out the average small business 401(k) as an ideal alternative. And while DiNapoli cited an estimate that 401(k) plans collectively lost $1 trillion during the recession, he didn't mention that his own fund lost $40 billion in fiscal 2007-08 alone. Nor did he acknowledge that during the four years since he became comptroller, a period in which NYSLRS counted on earning 7.5 to 8 percent, its returns have averaged 2.2 percent -- which is why the taxpayers are being forced to kick in much more.
Although the comptroller is above all a financial officer, with direct oversight of the nation's third largest public pension fund, he ignored the principal criticism of public pension systems from a financial perspective.
Consider the issue of the discount rate used to estimate future pension liabilities, which has been discussed extensively on this site and in many other public and online forums across the country. Private and public sector pension plans both invest heavily in equities in hopes of realizing high long-term returns, typically 7.5 to 8 percent. Private plans, however, discount their liabilities using the interest rate on low-risk investments, such as AAA-rated corporate bonds, which means they must put more money aside to fully fund their future obligations. Public plans discount their liabilities based on what they hope their assets will earn, reducing the amount taxpayers must pay into the funds. When asset returns are lousy -- as they have been for the past decade -- taxpayers must pick up the slack with much higher contributions.
A growing number of independent academics, actuaries, economists and other analysts who have studied this issue (including the Congressional Budget Office) have concluded that public funds are doing it the wrong way. This means DiNapoli and other trustees are systematically undervaluing their liabilities -- which, in turn, undermines the comptroller's contention that public pensions are inexpensive for employers. The Government Accounting Standards Board (GASB) recently issued new proposed rules to address some of the criticisms of the current approach, but GASB's approach in turn has been criticized by both sides in the debate.
So, what did the comptroller have to say about this raging controversy?
Nothing.
In DiNapoli's 10 pages of prepared remarks (not posted online by his office), the word "liability" appeared only
But of all senior state officials, the comptroller should care least about "perception." His duty is to confront and manage the financial realities that everyone else in Albany would prefer to ignore. If New York's CFO and sole pension fund trustee prefers not to think of pensions mainly as a "liability," then who in the world will?
DiNapoli also remains oblivious to the implications of his own policies. At the New School, he boasted, not for the first time, that "unlike some states that have skipped their annual payments --- sometimes for years -- New York State has never missed a payment."
In fact, while New York (unlike, say, New Jersey) has not skipped pension contributions, it has deliberately underpaid -- with the active connivance of the comptroller himself, as explained here and here. Over the last two years, the state has "amortized" (i.e., stretched out, over 10 years) $824 million in pension contributions, and the Cuomo administration plans to defer $2.7 billion more in similar fashion over next three years..
DiNapoli's continuing refusal to engage in discussion of key concerns about public pension funding stands in contrast to the clear-eyed approach of his fellow Democrat, Rhode Island General Treasurer Gina Raimondo, who issued this "Truth in Numbers" report as the analytical foundation for a set of recently enacted pension reforms in her state.
To be sure, Rhode Island's pension funds are in much, much worse shape than New York's. But if Rhode Island had elected a treasurer with DiNapoli's approach, it would now be on the road to bankruptcy instead of reform.
Sounds like DiNapoli is in the Union's pocket.