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Mayor and Comptroller Seek Joint Management for 5 Pension Plans

Mayor Michael R. Bloomberg and Comptroller John C. Liu, at right, proposed combining the management of five pension plans.Credit...Michael Appleton for The New York Times

Mayor Michael R. Bloomberg and the New York City comptroller, John C. Liu, proposed a far-reaching overhaul of the city’s five pension plans on Thursday, saying they believed that a new, consolidated investment strategy could save the city at least $1 billion a year.

At a City Hall news conference, the mayor and the comptroller, backed by the leadership of several unions representing city workers, said they would seek to merge the pension plans’ five boards, which have 58 directors, into one far smaller board that would oversee the plans’ combined $120 billion in investments. The plans cover 237,000 retirees and more than 300,000 current city and city-affiliated employees, like teachers, firefighters, police officers, sanitation workers and correction officers.

“We’re overhauling an antiquated pension management system that has needed restructuring for generations,” Mr. Bloomberg said.

The proposal, which calls for the first time for a full-time in-house professional investment staff to manage the city’s pension plans, requires state approval.

Mr. Bloomberg expressed confidence that Albany would approve the plan because the unions are backing it.

Gov. Andrew M. Cuomo voiced interest in the proposal, saying that he would like to reduce the “terrible financial burden” of public pensions, and that, for the city, “this seems like an initiative that could accomplish that goal.”

Mr. Bloomberg and Mr. Liu said their proposal was in many ways modeled on the pension plans of Harvard and Yale, which have enjoyed high investment returns in recent decades. They said they hoped the city could attract a star investment manager who would be appointed by the new unified pension board, and not by an elected official. Under current law, the city comptroller picks the investment staff that advises the five pension plans.

In an interview, Mr. Bloomberg said the proposed new system would help attract top-notch investment managers, because the system would not be politicized and because the manager would oversee such a large investment fund.

“The more investment returns you have, the less that taxpayers have to put in,” he said, “and that’s money for doing the kinds of services and the quality of services the public wants.”

But Mr. Bloomberg also said he remained intent on persuading the city’s unions and Albany to agree to a less-generous pension package for new employees, in the hope of holding down the city’s future pension costs.

Mr. Liu, calling the proposal a “game-changer,” said it would allow faster decision-making and generate substantially larger returns for the pension funds, saving the city money because it would need to contribute less each year out of its budget toward its pension plans. He said that the city spent about $400 million each year on pension consultants, and that under the new plan, it would cut that amount by bringing much of its investment management in-house.

“We’re not reinventing the wheel here,” he said. Union leaders praised Mr. Liu for spearheading the pension plan consolidation. They said his push to revamp the pension plans had been going nowhere for months but came together swiftly over the past two weeks.

The city’s municipal union leaders generally praised the proposal, and they are expected to help persuade the trustees of the five plans to vote to delegate their decision-making powers to the new, unified board.

“The current system is like trying to turn around the Queen Mary in the Hudson River, and by the time you turn it around, it may already be in the wrong direction,” said Steve Cassidy, president of the Uniformed Firefighters’ Association.

Harry Nespoli, chairman of the Municipal Labor Committee, the umbrella group for the city’s public employee unions, also praised the proposal. “Any time you’re talking about larger returns for the city, it’s less of a burden for the city,” he said. “And when you’re talking about larger returns for the members, it’s better for the members. It’s definitely something worth pursuing.”

But Pat Lynch, president of the Patrolmen’s Benevolent Association, said, “The devil is in the details.” He praised the proposal, but said he would reserve a full endorsement until he knew how the board would be chosen.

City officials have not specified the makeup of the investment board, but said it would have about a dozen members, some named by unions and some by the mayor and the comptroller.

The proposal was welcomed by business leaders and pension experts.

Keith P. Ambachtsheer, director of the Rotman International Center for Pension Management at the University of Toronto, said that when cities or states replaced old-fashioned, inefficient, often politicized pension management plans with ones that call for independent, professional managers who oversee large plans, that generally improves their investment returns by 1 percent to 2 percent a year.

With $120 billion in the city’s pension funds, such an increase could mean an additional $1.2 billion to $2.4 billion.

Mr. Ambachtsheer also praised the New York proposal for seeking to make sure that the members of the smaller single pension board would be well informed about investment management.

“It’s good to see New York City sort of jump to the head of the queue in terms of how it runs its pension system,” he said.

Andrew Ang, a business professor at Columbia Business School, also praised the proposal, saying, “The New York City pension system has now adopted a world-class public pension governance model.”

David W. Chen contributed reporting.

A version of this article appears in print on  , Section A, Page 25 of the New York edition with the headline: Mayor and Comptroller Seek Joint Management for 5 Pension Plans. Order Reprints | Today’s Paper | Subscribe

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