Comptroller urges state to investigate education pension fund

The city comptroller is urging the state Department of Financial Services to launch a review of the Board of Education Retirement System, citing a “severe lack of board oversight” of the pension system’s budget and investment process.

In a Feb. 8 letter to DFS Superintendent Adrienne A. Harris, Comptroller Brad Lander highlighted several issues at BERS, which manages the retirement funds for 57,000 school lunch workers, school crossing guards and other non-pedagogical employees at the Department of Education.

Among the concerns, Lander questioned why the pension system has failed to discipline Daniel Miller, the deputy executive director at BERS, who allegedly lied about receiving a job offer to receive a pay raise. According to a probe by the Special Commissioner for Investigation for the NYC School District, Miller received a $28,000 pay increase after asking BERS’ executive director, Sanford Rich, to match the salary of a job he claimed to have been offered at an Ohio pension fund.

Rich granted the raise without verifying the job offer, according to the SCI report sent to BERS in August, which SCI Commissioner Anastasia Coleman called “an act of negligence.” He then asked the board to raise his salary to $257,575 — 1 percent more than Miller — but was denied, the New York Post reported. Although SCI recommended that the board consider discipline for both Rich and Miller, no action has been taken.

Lander has called for Rich to be fired and for Miller to be demoted. In his letter to Harris, the comptroller noted that both “continue to earn salaries far above what they earned prior to the events identified by SCI, making them amongst the highest-paid employees of a New York City agency. … The board’s failure to hold them accountable for their breaches of public trust has placed me in a difficult position as the City’s chief fiscal officer.”

Alexander Kazazis, general counsel at BERS, declined to comment.

BERS trustee takes issue 

Notably, many of the city employees who are BERS members earn close to minimum wage: school crossing guards are paid $15.45 an hour.

“The protection of the members’ deferred wages is a sacred trust, especially given that they are some of the lowest-paid public servants in New York City,” Lander wrote.

The pension system has an $8 billion investment portfolio, the smallest of the city’s five pension funds, and has the second smallest number of members. Yet BERS, which has a budget of $34,657,458, has the third largest budget, the comptroller noted. Its budget exceeds that of the Police Pension Fund’s budget by more than $9 million, despite the fact that the fund manages a $48 billion portfolio for 96,000 employees, according to the letter.

The comptroller was also concerned that BERS staff did not provide the pension fund’s board of trustees with sufficient information to make sound investment decisions. Although the Comptroller’s Bureau of Asset Management provides BERS staff with investment recommendations, trustees were not shown these memos, the letter said. Instead, trustees have been making investment decisions based on a one-page summary written by BERS staff.

“Trustees have a fiduciary obligation to understand, and weigh carefully, the decisions they are making on behalf of tens of thousands of beneficiaries. The BERS staff is not providing them with the information they need to make such consequential decisions. It appears to me that the BERS trustees may not currently be fulfilling the standard of prudence for fiduciaries required by law,” the comptroller stated.

The city's fiscal watchdog criticized the pension system’s failure to create a standardized procurement process, citing the fund’s recent $110,000 emergency contract for technology infrastructure, which was acquired without using the competitive bidding process. He also noted that BERS frequently did not show interest in investment recommendations made to all five pension systems.

Donald Nesbit, a trustee at BERS who is also vice president at District Council 37’s Local 372, which represents school lunch workers and school crossing guards, called the comptroller's claims "baseless."

"It is very rare that we differ, but when we do, it's because we follow our Investment Policy Statement, which may be different from the other systems. This slight difference is the reason that BERS has outperformed the other systems," he told The Chief in a text message. "The Board of Trustees at BERS will be sending a response to DFS."

But in his letter, Lander argued that the "failures by the BERS Board add up to a broad dereliction of its duties, and they have led to my loss of confidence in the ability of the board of trustees of BERS to provide fiduciary oversight to the system.”

clewis@thechiefleader.com