Pensioners not always well-served by politicians

ONE of the great problems with government pensions is that the people who oversee them are often far less concerned with the systems’ financial stability than the workers who will depend on the pensions in retirement.

A new report from Tim Doyle at the American Council for Capital Formation highlights this problem. While the report, “The Politicization of New York City Retirement Systems,” focuses on the pension systems of the New York City government, the dubious practices highlighted are not unique.

New York City oversees a system of five pension funds with more than $190 billion in total combined assets. The funds’ weighted average funding ratio is just 62 percent, well below the national average of 72.2 percent and far below the 80 percent funded level considered “healthy” by experts. The city’s pension systems for firefighters and teachers have funding ratios below 60 percent. It’s estimated the city pension systems’ unfunded liabilities range from $65 billion to $142 billion.

Yet city officials have not only failed to address this problem, they’ve made things worse.

Doyle notes Comptroller Scott Stringer, who oversees the pension systems, has long touted a climaterelated agenda — “specifically declaring his intention to prioritize investments in ‘low-carbon indexes,’ use fund resources to lead a ‘climate change study and carbon footprint analysis,’ and examine ways to de-carbonize the pension funds’ portfolios, including ‘ceasing additional investments in fossil fuels, divesting current holdings in fossil fuel companies, and increasing investments in clean energy.’”

Mayor Bill de Blasio and Stringer have announced plans to divest the city’s five pension funds of roughly $5 billion in fossil fuel investments. As Doyle notes in his report, that strategy “seems questionable and more in line with political beliefs than fiduciary duties.”

That’s because numerous studies have shown such divestment campaigns generate only one result: reduced earnings for a pension system. And it’s not as if the overly politicized management of New York City pensions has cash to spare.

Doyle writes, “The returns on the investment portfolios of the five New York City Pension Funds (net of fees) have consistently underperformed the overall market since Mr. Stringer took office in 2014, and, on average, have also underperformed their own policy benchmark through the period 2014-2016.”

Such politicized management is also out of step with the wishes of pension members. A survey from the Spectrem Group found 79 percent of New York City pensioners believe their pension funds should be focused on generating returns and shouldn’t be making investment decisions based on politics, even if they support the idea or cause.

Meanwhile, failure to maximize investment returns has real-world impact for everyone. New York City taxpayers’ contributions to city pension funds have increased from $1.4 billion in fiscal 2002 to $9.3 billion in fiscal 2017.

A pension system is supposed to provide a stable and reliable source of retirement income to recipients. But when it is overseen by public officials, that goal can become secondary to making bold political statements at the sacrifice of other people’s financial security.