Libertarian Alex Merced gives his pitch for why he should be elected New York City’s Comptroller this November.
In 2018, New York City will make a 120 million dollar “catch-up” contribution to the city’s pension system, New York City Retirement Systems, to compensate for sub-par performance. This, however, is far from the only problem; the planned contributions for 2019 and 2020 are projected to increase by $241 million and $361 million, respectively. This is a tremendous amount of money, and, as always, it is the tax payer footing the bill. We must restore good stewardship of pension dollars, and this is the primary reason why I am running for NYC Comptroller as the Libertarian Party candidate in 2017.
Our current Comptroller, Scott Stringer, has spent much of his first term failing to address the structural risks in the pension system. Instead, he continues to focus on token efforts regarding fund shareholder voting. This may be due to the fact that Mr. Stringer lacks experience in the financial industry and fails to understand the structural issues surrounding pensions. Given that he was previously the Borough President of Manhattan, it is likely his primary focus has been building a resume for a possible mayoral bid. I have spent the last nine years of my career in the financial services industry, and I certainly appreciate the impact of “the discount rate” on our pension system. (The discount rate refers to the percent return a fund is expected to have fund future liabilities).
Right now the NYC Pension System has a 7% assumed rate of return, which is largely typical for government pension funds. However, it is still way above where it should be for the sake of pensioners and taxpayers. The reason many local governments use the rate of 7% was because of higher historical rates; therefore, 7% was a fairly safe and easy to achieve return. However, in the low interest rate environment of today, this is far from the case. It is also important to keep in mind that despite the goal of 7%, the NYC pensions only returned 3.5% in 2015.
Adjusting the assumed rate to something like a 3 or 4% would mean that NYC annual contributions would be larger, which is why it is politicians have avoided this. In my opinion, though, it would protect pensioners and save taxpayers money. With a higher assumed rate, the annual contribution may be lower, but the overall risk in the pension’s portfolio is greater, especially in the event of a crisis like the Great Recession. This can result in large “catch-up” payments for taxpayers (arguably greater than what would have been paid if paid earlier with less risky investments).
The point is that if you lower the assumed rate of return, the pension fund will be more stable with lower risk investments that can more predictably hit the lower benchmark. This would make the retirement of NYC workers more secure, while also protecting taxpayers from unforeseen “catch up” payments. This is the kind of effort a Comptroller should be focused on: being a watchdog for the tax and pension dollars of the people of NYC.
Alex Merced is the Libertarian candidate for NYC Comptroller in 2017.