New York City's retirement plan for municipal workers is growing more underfunded despite increases in the share of the city's budget to pensions.
And the city's new mayor, Bill de Blasio, is devoting little focus to the issue,
The New York Times reports.
From 1999 to 2012, the pension plan for general city workers plunged to 63 percent funded from 136 percent. Meanwhile, New York City is set to devote $8 billion next year to all municipal workers' pensions, up more than 1,100 percent from 2000.
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The pension spending now represents 11 percent of the city budget, up from less than 2 percent 14 years ago.
"They're never going to catch up," Sean McShea, president of Ryan Labs, an asset management firm that works for pension funds among others, tells The Times.
The city's pension system suffers from the same woes as other cities and states: hefty promises made to workers, the unwillingness of city officials to face up to the problem for years and overly optimistic assumptions for market returns.
The city's investment strategy "has failed to keep up with its growing costs, hampered by an antiquated and inefficient governing structure that often permits politics to intrude on decisions," according to The Times.
New York City's pension system is different than are many cities' plans, which typically have one or two plans separating general workers and uniformed personnel. New York has five separate funds that cover general workers, the police, firefighters, teachers and other school personnel.
Complicating things further, each fund has its own board of trustees, and the boards like to personally vet investment firms. This is where politics can often come into play. For example, The Times notes, the teachers' union "keeps a list of investment firms it sees as unacceptable because of their connections to groups that, say, favor charter schools."
In addition, regular audits of the city pension system, which are required by law, have not been performed since 2003. However, Benjamin Lawsky, the state's financial services superintendent, subpoenaed approximately 20 firms that advise the pension fund trustees on how to invest the billions under their control, according to The Times.
As for the problems nationwide, "without some way to amend the terms of retirement plans, states and municipalities . . . face years of increasing costs and pressure on budgets that inevitably mean higher taxes and fewer services—in other words, the worst of both worlds," Steven Malanga, a senior fellow at the Manhattan Institute, writes in the
City Journal, an urban affairs magazine published by the institute.
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