Current Pension Topics: Court: No Mandate, So TRS Board's Off Hook

Current Pension Topics
Court: No Mandate, So TRS Board's Off Hook
In 1981 the Variable Annuity investment menu of the Teachers' Retirement System of the City of New York was in its 13th year and still had the original two investment choices: A fixed-interest account and an equities account (Variable A). The Board of Trustees lobbied City Hall and Albany for the establishment of a third investment choice that would strike a balance between the two existing investment extremes; i.e.; fixed interest and equities. In 1982 the New York State Legislature gave the TRS Trustees the statutory authority to establish the Variable B fund. The fund began operations on July 1, 1983. The Intent and Purposes clause of the enabling legislation (Chapter 735 of the Laws of 1982) states: "To achieve the purpose of the new fund, the Retirement Board is directed to provide for the investment of its assets in such fixed income and equity securities as can be expected to yield the more stable rate of return desired."

Mr. Frank is a fee-only Retirement Financial Planner and a retired city high school Teacher of Accounting. He can be reached by telephone at (732) 536-9472, or via e-mail at rollover@optonline.net.

Having said that, the Board of Trustees has never adhered to the Intent and Purposes clause of Chapter 735. From its beginning in 1983, the trustees have invested in stable-value credit instruments known as Guaranteed Investment Contracts (GIC) issued by insurance companies and banks. Arnold H. Nager, a member/investor in Variable B recognized that the trustees never bought "fixed income and equity securities." So in April 1997, Mr. Nager sued the Board of Trustees for alleged wrongdoing and mismanagement of the Variable B fund. Eleven years later the case of Arnold H. Nager Vs. TRS (Index No.: 102377/97) has finally been decided. On April 29, 2008 New York's highest court, the Court of Appeals, refused to hear an appeal of the decision handed down by the Supreme Court's Appellate Division, which found that the TRS Trustees did nothing wrong, notwithstanding the fact that the Intents and Purposes clause of the Variable B statute directed the Retirement Board to invest in "fixed income and equity securities." Here is the complete decision of the Supreme Court's Appellate Division as sustained by the Court of Appeals: "The trial court correctly found that the "intents and purposes" section of the legislation creating the Variable B annuity fund (Laws of 1982, Chapter 735) did not impose a "mandate" on defendant Teachers' Retirement Board to invest in equities, that the Board did not act imprudently in deciding not to invest in equities, and that defendants disclosed to the System's members information about Variable B more than adequate to satisfy their fiduciary duties. We have considered and rejected plaintiffs' other arguments."

The court has spoken. Its decision brings into public focus the fact that of the six investment funds now offered by TRS, two are in the guaranteed-interest return category: The Fixed Return Fund and the Stable-Value Fund (formerly Variable B). I invite the TRS Trustees to share with all of you their reasoning behind the offering of these two funds. Of the remaining four funds, not one is the specific fund lobbied for by the trustees more than 25 years ago. Notwithstanding the court's decision, all members of TRS should demand that the Intent and Purposes clause of Chapter 735 of the Laws of 1982 be obeyed. Demand an investment fund comprised of "fixed income and equity securities."