NYC’s pension funds plagued by inefficiencies

New York City’s pension fund system for retired city workers is plagued by ballooning costs stemming from redundancies.

The cost to administer benefits to about 340,000 retirees and beneficiaries has grown by more than 40% to about $270 million since 2018, according to an analysis of the funds’ financial reports by Bloomberg. A member of the city audit committee brought attention to the funds’ spending and inefficiencies at a recent meeting.

There’s five retirement funds — one for teachers, nonteaching staff, police officers, firefighters and civil servants — and each have separate offices, staff and computer systems. And two of those funds are in the middle of multimillion-dollar technology upgrades.

New York pays employees out of one payroll system, but “as soon as they retire, we need five different systems to figure out how to pay them their pension benefit,” said Bud Larson, a former senior city budget official who recommends streamlining operations, at a Jan. 23 city audit committee meeting. Created in 2009, the committee reviews financial statements and approves the city’s hiring of auditors and actuaries.

In 2018, the city’s Independent Budget Office estimated that consolidating the five pensions into three, could save $20 million in the first year, and then $41 million two years later. The police and firefighter funds, which have similar retirement plans, could merge into one system, IBO said in a report. And employees covered by the fund for school employees, like crossing guards and cafeteria workers, could be transferred to the civil servants’ or teachers’ pension.

Last month, New York City Comptroller Brad Lander called on the state’s Department of Financial Services to review the pension fund for schools’ nonteaching staff, where spending has grown about 170% in five years. New York City’s Board of Education Retirement System’s $35 million budget exceeds the budget of the police pension, which has almost twice the membership.

In a letter to the State Department of Financial Services responding to Lander, BERS co-chairs Thomas Sheppard and Donald Nesbit said the comptroller’s request of a state review was unwarranted. The pension’s budget rose because it moved into new offices and could no longer use technical resources and facilities previously provided by the city’s Department of Education.

“BERS has incurred startup costs the other pension systems have had the ability to spread out over many years,” said the letter emailed to Bloomberg. The co-chairs wrote that calculating benefits for BERS members, many of whom part-time and have several tiers of membership, is more complex and therefore more expensive.

Sheppard emailed the letter to a Bloomberg reporter. Co-chair Nesbit, who cosigned the letter, hung up the phone on the reporter.

Last year, the city contributed $9.6 billion to the funds, which have about $250 billion in assets. Employees contributed about $2.5 billion, according to the funds’ financial statements.