December 12, 2007
DiNapoli Remarks on Major Pension Reforms
I want to thank Governor Spitzer and Superintendent Dinallo for their leadership and assistance in this reform process.
The proposed regulations we are announcing today will go a long way toward further restoring public confidence and trust in the management of the common retirement fund, and will commit future comptrollers to the same strong ethical guidelines.
When I was chosen to fill the vacancy in the Comptroller’s office last February, it was evident what my focus had to be. The office had been tarnished by some serious ethical lapses at the very top of the organization.
The overwhelming majority of our employees are ethical, dedicated public servants who work hard and honestly everyday, but the charges and allegations against the upper levels of OSC management had severely damaged the reputation of our office and the morale of our staff.
My uppermost priority over the past 10 months has been to restore integrity and ethics to the entire agency, starting from the top.
My first action as Comptroller was to issue an executive order on ethics that prohibited conflicts of interest and laid out clear and direct policies governing the use of OSC phones, computers, personnel, equipment and cars. We also prohibited campaign contributions by staff, and we prohibited employees from playing any role in personnel or contract decisions involving family members.
I also asked Frank Zarb – the former chair of NASdaq – and former Mayor Ed Koch to co-chair the Management Review Commission I formed to examine the operations of the comptroller’s office. I’ve already implemented several of the commission’s recommendations. We’ve created an Inspector General’s office and we’ve appointed a special counsel for ethics.
The IG has the authority to receive and investigate any complaints and accusations of impropriety by any employee of our office—including the Comptroller.
These actions were the start of our on-going work to restore confidence in one of the most important and visible parts of our agency – the management of the pension fund. Today’s announcement is an important step toward achieving our goal.
The good news – and it’s an important message – is the Common Retirement Fund’s performance. The Fund is as strong as ever. Our funded ratio is 104 percent of forecast obligations, one of the best funded ratios in the nation. The national average is about 88 percent for public pension plans, demonstrating New York’s fund is ahead of most plans in the United States.
Despite whatever might have happened under the prior administration, the Fund’s performance was not damaged and the benefits of the more than one million members and retirees of the fund were never jeopardized. The Fund is sound and secure.
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 revitalizes the Insurance Department’s oversight and regulatory role in the management of the pension fund and the retirement system. Unfortunately, this oversight role has been left largely dormant for many years, abandoned under the previous administration.
Governor Spitzer and Superintendent Dinallo are bringing a fresh approach toward meeting that statutory responsibility; it’s good to have them helping us ensure that the fund is run with the right kind of oversight.
One of the concerns raised about the Fund has centered on placement fees. This summer, I implemented a new policy that expands oversight and disclosure of third party fees and placement agents that are sometimes involved with Fund investments.
The policy requires that investment managers disclose to the Fund in writing the compensation arrangements and purpose of any payments made to placement agents or other third parties.
The use of placement agents is not uncommon in the investment world. But the role of a placement agent in connection with a Common Retirement Fund investment must now be disclosed before any deal closes.
And, in contrast to prior practice, that disclosure will be reviewed by a committee independent of the pension staff that includes the IG and our special ethics counsel. The new reporting requirements are designed to prevent conflicts of interest.
The Fund never pays placement agent fees and never has. We have no requirement or preference whether or not managers use placement agents to help secure Fund investments.
The policy I introduced last summer will be codified in the new regulations.
In addition to the regulations Superintendent Dinallo will discuss, I’m also announcing that every month, the CRF will be releasing to the press and posting on our website all fund transactions. We’ll provide information on every investment closed, including the nature of the investment, the amount of the investment, and the identity of the placement agent, if there is one, involved in the transaction.
We’re announcing all deals, retroactive to when I took office last February. Copies of those transaction reports are in the binders we distributed today, and they’re already posted on our website. Since I took office, we’ve closed 246 deals, including 38 involving placement agents.
We’ll report annually the cumulative amount of fees paid to each placement agent involved in a CRF investment.
It’s one more step, along with the disclosure and oversight included in the new regulation, toward ensuring transparency. My goal is to make the Common Retirement Fund the most open, transparent accountable public pension fund New York has ever had.
I’m also announcing the formation of a task force to review the operations, policies and practices of the pension fund, and to help us implement the new regulations. Shannon O’Brien, the former state treasurer of Massachusetts, will chair the task force.
The names of the other task force members are included in the packets you all have.
Like the Koch-Zarb Commission, I expect Shannon O’Brien and her colleagues will provide expert and wise guidance to continue our efforts for reform and improvement.
Since the start of my tenure as Comptroller, my office has cooperated fully with the Attorney General and the Albany County District Attorney as they’ve investigated the prior administration, and we’re continuing that cooperation.
I want to take a moment to thank Attorney General Cuomo and District Attorney Soares for their diligence and commitment to this long and difficult investigation. What has been revealed in the media about this investigation has helped us craft our internal reforms, and I look forward to reviewing the final results of the investigation to determine what, if any additional reforms we should make.
Someone asked me if I was tired of all the scrutiny and investigation and analysis, especially since none of the alleged transgressions occurred on my watch.
There are more than one million New Yorkers who depend on the Common Retirement Fund for their financial security – one million New Yorkers who look to me to make sure their retirement is secure.
We have built a partnership with the Insurance Department to improve oversight and guarantee the integrity of the Common Retirement Fund. We entered into that partnership to protect the pension benefits of those one million New Yorkers.
Whatever we can do, whatever scrutiny we undergo, will help to provide accountability and that protection.
The State Comptroller’s office holds state agencies, public officials, school districts, local governments, and public authorities to the highest standards of ethics and effective, honest, and open government. I will accept nothing less from our own agency. The reforms we’ve already made, enhanced with the Insurance Department oversight implemented in these new regulations, will help us get there.
Thank you, Governor Spitzer, for your support in our reform efforts. Your leadership is welcome, as is the leadership and diligent oversight provided by Superintendent Dinallo.