Pension Economizing

To the Editor:

The New York Times ran a front-page article on Nov. 6 about the reduction of existing retirement benefits paid to retirees of public pension plans across the United States. This is a frightening thought for public employees.

On June 8, 2006, the New York City Employees' Board of Trustees approved an investment expense budget for Fiscal Year 2007. The amount was $75.1 million. This was an understated amount, since approximately 10 private equity managers were not included. Neither were the investment consultants that are under contract to NYCERS. These oversights will probably raise the total amount to $80 million. I estimate that this budget amount for next year, FY-2008, will be over $100 million.

As recently as FY 2003, NYCERS's investment expenses were $28.4 million.

What does NYCERS gain from spending $80M on investment expenses? I'm sure someone will say increased diversification and increased expected rate of return for the portfolio. Notice the term used is expected, not actual, rate of return.

I'm very sure that NYCERS could prudently reduce investment expenses to $15 million per year. At the same time, NYCERS could maintain an adequately diversified portfolio and increase the portfolio's actual rate of return. This would be a very boring portfolio, heavily indexed. It would, however, make the pensions of the employees of the City of New York more secure and keep them off the front page of the New York Times.

In addition, the city would save $65 million plus interest payable in FY-2008. Always keep in mind that there are four other city pension systems.

JOHN J. MURPHY

Editor's note: Mr. Murphy is the former Executive Director of NYCERS.