New York Attorney General Andrew Cuomo and a group of New York state senators yesterday announced a plan to "reform" the state pension system by replacing the state comptroller as the board's sole trustee with a new 13-member board. According to the announcment, "The Comptroller would chair the Board and serve alongside six members appointed by the Governor, Attorney General, Temporary President of the Senate, Speaker of the Assembly, the Senate Minority Leader and the Assembly Minority Leader." This isn't really a reform at all, but an effort to distribute the campaign contributions from money managers, donations that are currently directed to the state comptroller, around among a larger group of politicians.
The New York City Employees' Retirement System currently has a similar 11-member board and it doesn't work very well. Mayor Bloomberg has been sending out mailings directed at his opponent in the mayoral race, city comptroller William Thompson, highlighting the campaign contributions Mr. Thompson received from pension fund money managers and complaining, "Instead of investing the pension fund money responsibly, Thompson ventured 'into riskier new markets' – costing the pension fund millions." It's a fair criticism in some sense, because Mr. Bloomberg funds his own campaign without accepting contributions. But when I last looked into the matter, Mr. Bloomberg's representative on the NYCERS board wasn't voting any differently than Mr. Thompson. In fact, Mr. Bloomberg's longtime representative on the board, his finance commissioner, Martha Stark (who has since left office), only showed up personally at 6 of 21 board meetings, as a New York Sun editorial reported.The mayor's representative is the chair of the board that Mr. Bloomberg's campaign fliers accuse of investing pension funds irresponsibly.
This may all seem like just a bunch of local politics, but there are huge sums of money involved – NYCERS had $47 billion in assets at June 30, 2008, and the New York State Funds assets were $109.9 billion as of May 29, 2009. The fees on managing those funds are a huge prize that New York city and state politicians have to bestow on the financial industry, and they are part of the explanation of why New York's money managers are less outspoken than they might otherwise be in calling for less taxing and spending in New York. One approach that might help clean the whole problem up, as I argued in this Forbes.com article, would be a move away from a defined benefit system in which the politicians choose the money managers, toward a defined contribution system in which individuals are free to manage and invest their own personal accounts.