Correction VSF Runs Dry; No '07 Payments;
Annual Loss of $12G Until 2019 Unless Law is Amended

By REUVEN BLAU

The Variable Supplements Fund for thousands of uniformed correction personnel has officially dried up and payments of up to $12,000 will not be made this year, according to the New York City Employees' Retirement System.

ROBERT C. NORTH: Fund's assets inadequate.

In April, City Actuary Robert C. North had warned that it was highly unlikely that the special retirement benefit based on pension fund stock earnings would be paid at the end of this year.

Assets Didn't Grow

"Existing law requires that the fund assets be adequate to provide complete VSF payments," the NYCERS letter recently mailed to eligible members explained. "The current circumstance can only be rectified by a substantial improvement in the fund's assets, which is not anticipated."

Correction Officers' Benevolent Association President Norman Seabrook said at the time that the union would lobby for legislation designed to give the board which administers the VSF more discretion.

But proposed changes that would have allowed the board to distribute a minimally reduced amount to approximately 3,000 retirees never got the required Home Rule Message from the City Council that was needed to forward the bill to the State Legislature.

NORMAN SEABROOK: Breakthrough hits a bump.

The Bloomberg administration had opposed the measure, contending that the funds should be used to help pay the benefit in 2019 - the point at which, under the 1999 law creating the Correction VSF, the benefit becomes guaranteed, sources said.

Referring to this year's legislation, COBA spokesman Michael Skelly said in a Sept. 21 interview, "That and all options are still on the table. When we have something new to tell our members, as always, we will continue to apprise them of the information they need to know."

Won't Reduce '19 Benefit

Mr. Seabrook has emphasized that he is unwilling to make any changes in the benefit that would remove the 2019 guarantee for all retirees. "I'm not going to sell this bill," he has said.

The union president has also stressed that officers and retirees had been notified and warned since the VSF bill was enacted that it isn't guaranteed until 2019.

It is unlikely that the fund drying up will reduce the number of officers who retire as soon as they become eligible for a full pension after 20 years on the job. "Pre- VSF people were retiring at exactly the 20-year point," said Alan Vengersky, the Correction Department's Assistant Commissioner of Personnel. "I don't know if it will retard retirement."

The VSF, which is actually a defined benefit, was created in 2000 after Governor Pataki signed the legislation, much to the chagrin of then Mayor Rudy Giuliani and many city and state unions. Because it is not legally a pension benefit, it is not protected by state public-employee retirement law and can be reduced or eliminated.

The fund is financed with a "skim" of NYCERS stock investment earnings every time those earnings exceed a stated projection of the profits if the money had been invested in bonds.

The skim from the first year of the benefits generated approximately $100 million, a product of the late 1990s bull market that had just begun to decline. Those earnings have been used to finance the defined benefit over the past six years. But with the exception of the minimal gains of fiscal year 2004, stock earnings over the past few years have not reached the set level above the return on government bond investments that triggers a skim.

Hope Didn't Pan Out

Correction union leaders banked on the market continuing its upswing for at least a short while longer, which would have produced enough earnings to keep the fund afloat until 2019. Under the current setup, uniformed members of the Correction Department who retired after July 1, 1999 received $11,500 last December, with the amount scheduled to reach a $12,000 ceiling for 2007. "There is enough money to pay $10,500," said a source familiar with the fund, noting that the money will now be set aside.

The substantial boost in compensation for the city's jail officers six years ago - won outside the collective bargaining process - was testimony to the political clout of COBA, and in particular the special relationship established between Mr. Seabrook and Mr. Pataki.

The union president was one of the most prominent labor supporters of the Governor's re-election bids in 1998 and 2002, and lobbied hard for the VSF bill, arguing that Correction Officers deserved parity with the police and fire forces.

Those unions, however, had gotten their VSFs three decades earlier in return for allowing the Police and Fire Pension Funds to make stock investments. (Their payments, which will be $12,000 per retiree for 2007, will go through as scheduled.) When the Correction VSF legislation was considered, NYCERS already could make stock investments, and the correction unions represent just a small segment of the fund's membership.