I read recently that New York City public actuary Robert North is retiring, some years after I wrote that he deserved to be fired.
North leaves behind a city facing a unique situation. In no other place have people been forced to pay higher taxes and accept diminished services to the extent that NYC residents have, in order to pay as much for pensions. And yet NYC’s pension plans are among the worst funded in the country. The retiring actuary leaves behind grateful public employee unions, and current and former city and state politicians, whom North allowed, without objecting, to make claims that political deals to retroactively increase those public pensions would cost city residents nothing. And also allowed to not force people to pay the cost of the pension increases until years later, something that made that cost even greater. For this service he was allowed to stay in office and retire with a retroactively increased pension himself.
New York City’s politicians and unions clearly expect similar service in the future. Because although it is the job of the city actuary to prevent politicians and unions from looting the city’s future for their own benefit, guess who decides who gets the job? “A City Hall spokesperson said the administration and municipal unions have created a joint committee to find a successor,” according to WNYC.
In recent years, North has taken on the persona of a reformed sinner, satisfying his conscience by adding information, in small print deep in his reports, about bad off the NYC pension funds were and are, while the headlines read that they were 100 percent funded. Until suddenly it was admitted the situation is far worse. “The New York City pensions have about $150 billion in assets, but they need about $70 billion more to be fully funded” according to WNYC. And that is according to public actuary North, the man who said there was no problem a few years ago. The reality is almost certainly much worse.
The solution? “The five systems combined had contributions of $700 million in Fiscal Year 2000. And it will be close to $9.6 billion for Fiscal Year 14.” That’s higher taxes, service cuts, and inadequate infrastructure funding. And there is more to come.
And why? North can’t keep seem to stop shilling, even on his way out the door.
“When you have bad investment performance, or people start living a lot longer than expected, you start having deficits. It’s like you take on a debt that you didn’t maybe expect, but you have to deal with it. All investments funds have been struggling in the last decade due to poor investment performance.”
The falsehoods, as usual, are in the unsaid.
Yes investment performance has been “bad” for the past 10 years. But that is because there was a stock market bubble before that, another smaller bubble leading up to 2008, and yet another bubble now. Those bubbles temporarily inflated asset values, and their deflation led to lower gains thereafter. But pension funding is a long-term concern, and it is likely that over North’s entire tenure investment performance was quite good, not bad. If the rate of return on public employee pension assets, over the entire 1990 to 2014 period, approximately matched or exceeded the assumed rate of return, as is almost certainly the case based on Census Bureau data, the investment returns did NOT cause pension underfunding.
The Unsaid? Each time stock prices temporarily soared North allowed his generation of public employees, union leaders, and politicians to grab a bunch of money off the top, leaving younger generations to pay the tab each time stock prices corrected to normal.
It should be noted that pension deceiver and former NYC Comptroller John Liu made the mistake of saying two different things about investment returns in two different reports, assuming no one would read the two of them together. In one report, to defend the idea that the expected future rate of return was not unduly optimistic, he pointed out that over the long run the investment returns of NYC pension funds had in fact exceeded investment expectations. But in another report he claimed the main factor in pension funding gaps, and the main cause of soaring pensions costs, was unexpectedly low returns – just like Robert North. At least North has been smart enough to stick to his story, false though that is.
As for rising lifespans, that is the least of all the factors affecting the soaring pension burden on New Yorkers. It isn’t so much that NYC public employees are living longer than was expected when they were hired. It is that they were allowed to retire sooner years sooner than they were promised when they were hired, after working fewer years, as a result of those pension deals with their politician cronies. As a result of the early retirement “incentive” of 1991, the early retirement “incentive” of 1995, the reduction in the retirement age from 62 to 57 (with an increased employee contribution) in 1995, and, for NYC teachers, a reduction in the retirement age to 55 in 2008 (with no increased contribution).
All these deals were described as “costing nothing” or “saving money” without a peep from actuary North. But each of them caused the payouts by the NYC teacher pension fund to increase by about one-third, a huge increase in payouts that had not been saved up for in advance and was not paid for at the time.
And in 2000, as a result of another deal that was said to “cost nothing,” pensions for all public employees were increased retroactively for past inflation with ongoing increase thereafter. The largest benefits went to those public employees already retired, the ones who had left the city in ruins in the 1970s. At the same time the amount most NYC public employees contribute to their own pensions was slashed. Though these deals were also described as “costing nothing,” over a few years payouts by NYCERS, the largest NYC pension fund, soared by about one-third as a result. This deal, at a minimum, also personally benefitted then city actuary and now public employee pensioner Robert North.
In some places taxpayer underfunding of promised pensions gets most of the blame for the pension crisis. In NYC, on the other hand, it is retroactive pension increases scored by unions get the vast majority of the blame. And increases were extremely unjust, because they were increases on top of promised benefits that were richer than virtually all other New Yorkers receive. The fact that future public employees have had their promised benefits slashed to less than Robert North’s generation of public employees had been promised to begin with just makes the injustice greater.
What is worse, with regard to NYC teachers and police officers, this theft through deceit took place at the same time that there was widespread goodwill toward those in such jobs, and widespread support for raising their cash pay. It the face of that goodwill, people were lied to and robbed, and North stood silent, in effect backing the lies.
And yet North seems to want to pretend those increases did not occur, or were not important, or perhaps really did cost nothing. And WNYC chooses to let him. So he didn’t bring them up, and wasn’t asked about them.
“[In New York City] one can debate whether they’re too generous, not too generous. One can debate whether or not the way we fund them has caught up.”
How about the possibility that they were fine to start with, but became unjust, in the hole, and so costly as to create an ongoing fiscal crisis only AFTER all those deals that “cost nothing” and years of “smoothing” in that zero cost?
“These defined benefit plans are amongst the best, most economical delivery systems for providing reasonable benefits for public workers you can have.”
To what is he referring? Pension contributions at 50 percent of public employee pay, or more? Because that is what he has left us with.
Businesses have been found to have committed fraud for less. Some of those businesses sued for fraud, in fact, have been pension actuarial firms that advised governments that did not have public actuaries of their own. When Milwaukee County’s pension fund was found to been looted by a massive retroactive pension increase and the County Executive was forced to resign, his replacement (and now Wisconsin Governor) Scott Walker sued the county’s actuary firm.
“Milwaukee County, its Pension Board and Employee Retirement System claim that Mercer Inc.’s negligence and intentional acts led to the inclusion of overly expensive elements in the county’s 2000-’01 county wage and benefit package. The county is seeking more than $100 million in damages plus more in punitive damages. Its experts have suggested the full cost of the ‘backdrop’ lump sum and related benefits may even reach $900 million.”
“The county is a $1.4 billion a year enterprise.”
“Key bits of evidence include the failure of Mercer consultants to speak up at an Oct. 27, 2000, meeting of the county’s Pension Study Commission. The county’s lawsuit argues the Mercer employees should have contradicted a presentation stating that the backdrop would not cost the county anything and admitted that they hadn’t yet studied the backdrop’s cost.”
Mercer eventually settled the case and agreed to pay $45 million.
As a result of that deal Milwaukee County taxpayers have seen their taxes soar and the county services gutted. That’s why they were suing. In Detroit, younger retirees are facing cuts in their benefits as a result of past pension payments to older retirees in excess of what they were promised, and it is they who are suing the actuary.
“Gabriel Roeder’s job was to help Detroit’s pension trustees run a sound plan, she says, but instead the firm covered up a growing shortfall and encouraged the trustees to spend money they did not really have. Her (a retirees) complaint contends that the actuaries did this knowingly, ‘in concert with the plan trustees to further their self-interest.’ The lawsuit seeks to have the pension plan made whole, in an amount to be determined at trial, and to have Gabriel Roeder enjoined ‘from perpetrating similar wrongs on others.’” Others have also filed lawsuits against that firm.
In a case of do as I said, not as I did, it seems that former city actuary Robert North would also like to see his successor prevented from perpetuating similar wrongs on the people of New York City.
“If you stick with the plan such as the one I’ve laid out through 2032 on balance it’s going to be just fine.”
So the actuary who for 24 years rationalized “if things go perfectly this won’t be so bad” now says the city’s fiscal crisis (temporarily interrupted by the occasional stock market boom like this one) will only last another 16 years! Gee, maybe then the city can reverse the defunding of the MTA, have the libraries and parks people are paying for, have decent schools, and local taxes that are merely 70 percent above the U.S. average (as a percent of income) instead of double in just 16 years?.
Or maybe not. Maybe it will take longer than that. Comptroller Liu hired an actuary to review the city’s plans. In small print in the back of the report, that actuary projected the need for sky-high pension contributions until the year 2040. Although in the front of the report in big print Liu said everything was fine and the “normal” cost of pensions is almost nothing. Regardless of what we are actually paying.
Moreover, who says the City of New York is going to stick with the plan?
Are Mayor DeBlasio and the unions really going to hire a City Actuary who will speak truth to power, after the political/union class has gone through the trouble of getting another shill at the Office of the City Comptroller?
The next time stock and bond prices correct at the same time the city’s tax revenues are plunging (because Wall Street pillaging has declined), will Mayor DeBlasio really step up to the plate and impose the draconian sacrifices on New Yorkers that the previous self-dealing by his crowd will have caused, at the expense of his own career? A long series of New Jersey Governors has refused to do just that, and they all blame each other for what they all did, the unions did, the legislature did, the New Jersey courts failed to do.
Even as disaster draws ever closer. Because the consequence of not imposing draconian sacrifices on the innocent is even more draconian sacrifices down the line.
And what about the unions? Every time the stock market hits a record, as it has recently, they order their cronies in the New York State Legislature to hand out additional retroactive pension increases without any public debate. And those cronies comply. They have done so once again, and more are coming. Governor Cuomo is vetoing them, but does he want to be President Cuomo? Senator DeBlasio? We have a 50 year history of what happens when New York politicians get those thoughts, given that the consequences can be hidden, lied about and deferred until another cabal has fled to Florida.
Does Robert North, in these cases, really expect the next New York City public actuary to stand up and publicly condemn any future retroactive pension increases and underfunding? When he did not? Sacrificing their job and doing the opposite of what he did?
That’s what this is about. New Yorkers are vaguely dissatisfied, and will be more dissatisfied over time as they get squeezed and squeezed and squeezed. They would be outraged if they knew why it was happening. Which is why NYC politicians and the NYC public employee unions are seeking a pension shill, to be silent and go along with whatever lies they come up with until they grab what they can and move on, slamming the door behind them. One such an actuary won’t be hard to find. It would be far harder to find a true professional willing to speak truth to power, because these have virtually disappeared in the era of Generation Greed.