Washington — The state of New York is launching audits of more than $350 billion in state and city pension funds in the wake of Detroit’s record-setting Chapter 9 bankruptcy filing.
In letters to New York City and the teachers’ and state pension funds, New York Department of Financial Services Superintendent Benjamin Lawsky said he is launching audits.
“These are huge funds that provide for the retirement of millions of New Yorkers. And they are supported by billions in taxpayer money,” Lawsky wrote. “Indeed, the recent financial difficulties in Detroit serve as a stern wake-up call, demonstrating why strong oversight of New York’s public pension funds is so important.”
One key issue is looking at “pension spiking” — employees loading up on overtime in their final years to boost the value of their pensions, Lawsky said.
“Where we find areas that need urgent and prompt corrective action, we may propose new regulations to increase accountability and transparency at those funds,” he said. “Stronger oversight of our state’s pension funds is in the public interest.”
The New York state pension fund alone has assets of $160 billion, while New York City’s pension funds are worth more than $110 billion and the teachers’ pension fund has assets of about $88 billion, according to annual reports filed by the funds.
Detroit’s pension funds have been criticized for mismanagement and for awarding retirees bonus payments that weren’t required. In a report last month, the city’s emergency manager noted the funds lost more than $125 million on real estate deals. The report also said 13 percent of claims were deemed likely fraudulent.
Orr says the city’s two pension funds are underfunded by $3.5 billion. He has offered a $2 billion note in exchange for $11.5 billion of the city’s unsecured liabilities, including its pension liabilities, retiree health care obligations and unsecured bonds. That would mean the pension funds only receive about $667 million. The city’s plans cover about 33,000 people.
In August, Lawsky said some of the computer code used to handle New York’s Common Retirement Fund pension plan dates to the late 1950s — and the mainframe is more than 25 years old. The pension system acknowledged the fund’s technology programs are “approaching the point of failure,” Lawsky said.
“In a world of high-tech hackers and high-frequency trading, a nearly $160 billion pension fund is being managed with computer code from the 1950s and hardware from the 1980s. The regulations we are proposing today to address the problems our audit uncovered will help better protect millions of retirees and taxpayers who today are at risk,” he said.
In August, New York City Mayor Michael Bloomberg has also raised Detroit’s bankruptcy filing as a warning sign to every American city. “Avoiding the hard choices is how Detroit went bankrupt. And it’s the road to ruin for any city,” he said.
New York’s pension costs have been rising — up from $1.4 billion in 2002 to $6.3 billion in 2009, Bloomberg said.
Across the country, rising pension fund costs are a big concern. A recent Pew Charitable Trusts study of large cities reported they have funded 57.5 percent of the $511.2 billion of retirement benefits promised to employees.