Empire State Cracks Down on Pension Fund Ethics

December 13, 2007 (PLANSPONSOR.COM) - New York state officials have announced a tightening of regulations governing the operation of the Empire State's $154-billion public employee pension fund.

The new rules for the New York State Common Retirement Fund.are aimed at the types of conflicts of interest that led to a sizable controversy under former Comptroller Alan Hevesi (See  Probe Finds Brokerage Firm Got Millions in Business Because of Pension Fund Ties ) who agreed to step down under pressure earlier in 2007, according to an Associated Press report.

The rule changes include:

  • A bolstering of Comptroller Office ethical regulations – The rule establishes conflict of interest disclosure and reporting standards, members of all committees, and all outside consultants and investment managers;
  • A ban on campaign contributions by staff members;
  • Creation of a permanent inspector general’s position to investigate ethics complaints;
  • Creation of a new audit committee with members not affiliated with the comptroller or the fund to review and report to the comptroller on the internal and external audits of the fund. The audit panel will post the fund’s investment policy statement on the Web, including investment objectives, guidelines, limits, and standards for evaluating investment performance and risk;
  • A mandate to an actuarial committee to review actuarial standards, establish clear standards for evaluating investment performance and risk, and strengthen the investment advisory committee;
  • Reporting of fees paid by companies seeking investments by the fund and who received them.

“These steps are designed to improve internal controls, increase transparency and set ethical standards and fiduciary responsibilities,” officials said in their  announcement of the move . The rules “will improve efficiency, protect the pensions of one million government employees, and help restore confidence in the governance of the fund.”

Insurance Superintendent: Eric Dinallo asserted in the announcement that the reforms are long overdue. “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,” Dinallo said. “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.”

The proposed regulations apply only to the New York State and Local Retirement System and the Common Retirement Fund and not to the New York State Teachers’ Retirement System or the five New York City pension funds. Officials said in the announcement that the Insurance Department will be discussing with those funds possible improvements to the existing regulations that cover them.

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 comptroller is the administrative head of the retirement system and sole trustee of the Common Retirement Fund.

According to the Associated Press report,  Comptroller Thomas DiNapoli, who took office in February, said the New York State Common Retirement Fund is funded at 104%.

The new rules are  here .