Major changes to pension fund proposed

By SHERRY HALBROOK
PEF is of two minds about proposals to change the state pension law.

The union has serious reservations about a new legislative initiative, announced in early October by state Attorney General Andrew Cuomo. He wants to end the state comptroller’s role as sole trustee of the state pension fund and give that responsibility to a 13-member board of trustees chaired by the comptroller.
At the same time, PEF supports provisions in the legislation aimed at eliminating corrupt practices discovered earlier this year called “pay to play.”

“Historically, we have held the elected comptroller, as sole trustee of the fund, provides more public accountability than spreading that responsibility over a panel of appointed trustees,” said PEF President Ken Brynien. “However, PEF is very interested in proposals to more effectively protect the integrity of the Common Retirement Fund and its investments.”

Most recently valued at $116.5 billion, the NYS Common Retirement Fund supports the retirements of approximately one million state and local government employees and teachers.

The fund has suffered huge investment losses from the stock market collapse that began last year. It was rocked earlier this year by criminal indictments related to fund management and the conviction of former comptroller Allen Hevesi, who resigned and pled guilty in 2006 to misuse of staff at the Office of the State Comptroller (OSC).

Matter of TRUST
The legislation, announced jointly by Cuomo and three members of the state Senate, is titled “Taxpayers’ Reform for Upholding Security and Transparency” (TRUST). It would institutionalize Cuomo’s Public Pension Fund Reform Code of Conduct, that he announced earlier this year, and provide additional civil, criminal and administrative penalties and sanctions to ensure firms and individuals are held accountable for violations of it.

The bill also would prohibit pay-to-play campaign contributions to the trustees and the comptroller.
Cuomo said, “The sole trustee model has allowed pay-to-play to flourish in a system meant to protect the retirement accounts of thousands of hard-working public employees.”

Open to discussion
State Comptroller Tom DiNapoli said he welcomes both the proposed reforms, which would codify some measures already taken, and discussions of the proposal to create a board of trustees to run the fund.

“It’s been a long struggle to repair the damage the Hevesi administration inflicted on the state pension fund,” DiNapoli said. “Over the past two and a half years, I’ve used my authority as trustee to institute a long list of reforms to the management of the pension fund to limit the opportunity for corruption.

DiNapoli said he has: banned the use of placement agents and lobbyists in fund investments, adopted policies to stop pay-to-play, increased transparency and accountability, and limited contributions to his own campaign to less than half the legal limit.

Building legal firewall
One key area of reform in the TRUST proposal is a ban on investment firms using “placement agents,” lobbyists or other intermediaries to interact with public pension funds for any purpose.

Investment firms and their principals, agents, employees and family members would be banned from doing business with a public pension fund for two years after the firm made a campaign contribution to any pension fund trustee or candidate for that post. The firms also would be barred from making improper gifts or job offers to public pension fund employees and officials.

The bill would require rigorous and continuing disclosure of the identities, responsibilities and qualifications of investment fund personnel and any payments by investment firms to third-parties in connection with public pension fund matters. Investment firms would be required to promptly publish such information on their Web sites and annually certify their compliance.

TRUST creates tough new civil, criminal and disciplinary penalties and sanctions, and requires licensed professionals to report evidence of violations. It also allows criminal prosecution for the theft of property and services from the retirement system, and extends the statute of limitations for persons acting in concert with public servants.

TRUST would codify the Public Pension Fund Reform Code of Conduct created by Cuomo earlier this year. So far, The Carlyle Group and six other investment firms have signed on to the code.

“These firms collectively have agreed to return nearly $60 million associated with New York State Common Retirement Fund investments,” Cuomo said.

He said he uncovered “a complex criminal scheme ... under former Comptroller Alan Hevesi, in which the … pension fund was used as a piggy bank for the comptroller’s chief political aide and a favor bank for political allies and other friends.”

California and some other states that use appointed boards to run their pension funds have experienced corruption problems too.