STATE OF NEW YORK
GOVERNOR AND COMPTROLLER PROPOSE PENSION FUND REFORMS
Changes Will Create New Ethics Standards and Increase Transparency
Governor Eliot Spitzer, State Comptroller Thomas DiNapoli and Insurance Superintendent Eric Dinallo today proposed a new set of state pension fund regulations which will improve efficiency, protect the pensions of one million government employees, and help restore confidence in the governance of the fund.
The new regulations, jointly developed by DiNapoli and Dinallo, will improve oversight, codify high ethical standards, increase transparency and implement strong internal controls and governance of the $154.5 billion New York State Common Retirement Fund.
Specifically, the new regulations will create a new audit committee, mandate an actuarial committee to review actuarial standards, establish clear standards for evaluating investment performance and risk, and strengthen the investment advisory committee. These reforms dovetail with DiNapoli's ongoing efforts to develop, implement and publicly disclose management standards, practices and policies. These steps are designed to improve internal controls, increase transparency and set ethical standards and fiduciary responsibilities. Many of the new rules are already in place at the Comptroller's office.
"Recent events have illustrated the importance of protecting the integrity of the state pension fund. The new regulations, developed by Comptroller DiNapoli and Superintendent Dinallo will maximize protection for taxpayers, local governments and beneficiaries," said Governor Spitzer. "The new regulations increase reporting and transparency, create independent committees to oversee key areas, and strengthen supervision by the Insurance Department. To his credit, Comptroller DiNapoli has already championed and set in motion some of these new standards."
Comptroller DiNapoli said: "The Fund's performance has been and continues to be among the best in the nation. But I understand that it's not enough to talk about performance. We need to set the bar for transparency and integrity, and we need to set that bar very high. My office has already taken significant steps toward increasing transparency and ensuring ethical management of the pension fund. These regulations codify many of those steps, and revitalize the Insurance Department's role in the review of the pension fund and the retirement system. The reforms we're announcing today will still give us the investment flexibility we need to maintain the Fund's strong performance and maintain the Fund's integrity and autonomy. We welcome this partnership with Governor Spitzer and Insurance Superintendent Dinallo."
Superintendent Dinallo said: "This is the first major amendment to public pension fund regulations since they were first promulgated in 1978, and it brings pension fund regulations up to modern standards. The best way to protect the pension fund is with strong internal controls that can prevent problems from occurring in the first place. The new regulations establish those controls and our audits will determine if the controls are being followed. With these stronger regulations, our future audits will be able to reassure the people of New York that the pension fund is being properly and ethically managed, or alert them if it is not."
Since taking office in February, DiNapoli has created the position of Inspector General and appointed a new Special Counsel for Ethics, and he has established clear guidance and disclosure rules on acceptable practices regarding investment managers, advisors and consultants. Many of DiNapoli's reforms, including his disclosure requirement regarding the use of placement agents and the use of the Inspector General to investigate charges of corruption, will be codified in the new regulation. DiNapoli also announced that he will be releasing a monthly report of pension fund activities, including information about placement fees and agents involved in Fund investments.
In addition, under the terms of the proposed regulations the Comptroller will:
Danny Donohue, President of the Civil Service Employees Association (CSEA), said: "The public needs to be confident in the integrity of our pension investment policies and oversight. That's even more true for CSEA members who rely on the system for their future security. These reforms will help strengthen that confidence."
Ken Brynien, President of the Public Employees Federation (PEF), said: "We applaud the efforts by State Comptroller Thomas DiNapoli and Superintendent of Insurance Eric Dinallo to strengthen the oversight and transparency of the state retirement system. PEF remains confident that the Comptroller will do everything in his power to maintain the viability of the system while also ensuring accountability."
Richard Iannuzzi, President of the New York State United Teachers (NYSUT), said: "Clear, high standards for how employee pension investments are made can only strengthen safeguards for workers' dollars and cents — that's good common sense. On behalf of the 90,000 NYSUT members who participate in the state Employees Retirement System, we look forward to working with Governor Spitzer, Comptroller DiNapoli and Superintendent Dinallo on this collaborative initiative dedicated to transparency and accountability."
Barbara Zaron, President of the Organization of NYS Management/Confidential Employees, Inc. (OMCE) said: "With these proposed regulations, we are adding on to and extending the 'glass house of public employee accountability' to private sector entities that do business for and with the NYS retirement system. These additional transparency and accountability measures should reassure all the stakeholders that the NYS retirement system will be the most open, best public retirement system in the United States while continuing to be run for the sole benefit of the system's members and beneficiaries."
Stanley Winter, President of the Retired Public Employee Association, said: "The Retired Public Employees Association fully supports the agreement between Comptroller DiNapoli and the Superintendent of Insurance to increase the requirements for transparency of operation, ethical standards for employees and advisors and public disclosure. It bodes well for public retirees, all members of the system and the citizens of New York. Significantly and most importantly the Comptroller's role as single fiduciary remains."
James F. Lyman, President of Council 82, AFSCME, said: "The fiscal integrity of the state's pension system is very important to our members and retirees. These amendments will make the pension system's investment policies more transparent."
The New York State and Local Retirement System provides benefits to more than one million employees and retirees of New York State, most local governments and some public authorities. The State Comptroller is by law the administrative head of the retirement system and sole trustee of the Common Retirement Fund.
Section 314 of the Insurance Law authorizes the Superintendent of Insurance to set standards for public retirement systems in consultation with the head of the system. The Insurance Department is also required to audit public pension systems at least once every five years.
The Comptroller, as sole trustee of the Fund, and the Superintendent, as the statutory independent regulator, together protect the Common Retirement Fund.
The proposed regulations apply only to the New York State and Local Retirement System and the Common Retirement Fund. The new regulations will not cover the New York State Teachers' Retirement System or the five New York City pension funds. However, the Insurance Department, as required by the Insurance Law, will be discussing with those funds possible improvements to the existing regulations that cover them.
The Insurance Department is conducting outreach by circulating a draft of the regulations and will hold a public hearing within the next few months. The regulations will then go through the legally required regulation review process, which includes publication in the New York State Register and a formal 45-day comment period for written comments.
The Insurance Department also released today an audit of the State and Local Retirement covering the years 1996 to 2001.