September 2025 Public Pension Round-Up: New York, Divestment, Inspectors General, and CalPERS
Let's See How Everybody is Doing!
Do you want to make any bets before I begin?
New York: Costs Are Going Up
From EJ McMahon’s substack: Public pension costs rising again for NY state and local governments
Taxpayer-funded employer contributions to New York State’s biggest public pension plan are about to increase for a fourth consecutive year, likely adding at least $400 million dollars to an annual expense that already tops a combined total of more than $6 billion a year.
The coming uptick in employer pension costs was announced last week by state Comptroller Thomas DiNapoli, who is sole trustee of the enormous Common Retirement Fund (current assets approaching $300 billion) and administrator of the 500,000-member New York State and Local Retirement System, which consists of the Police and Fire Retirement System (PFRS), whose membership is described by its name, and the Employee Retirement System (ERS), which covers everyone else (other than professional educators) working for the state and for local governments (excluding New York City).
Here are the before/after contribution rates (for easy comparison):
Those percentage increases assume the payrolls themselves haven’t increased. What do you think is likely to happen?
Those are some pretty hefty increases.
Here is McMahon’s longer-term graph:
I will point something out before going back to McMahon:
That collapse in employer contribution rates to close-to-zero around 2000 was not unique to New York.
But it was appalling that that happened.
Having the contributions drop precipitously when the employers can best afford it (when the markets were doing great, and New York has a lot of tax revenues driven by the financial sector) and then have them climb when times are tough — that’s called cyclical. This makes the defined benefit pension system more fragile by making it more difficult for employers to support.
You want something that smooths over the highs and lows - that you can contribute more when times are going well and less when stressed…
But alas, since that peak (trough) of 2000, the contribution rates have been generally climbing.
At least New York didn’t do what California did: boost benefits retroactively — hey, things are so great, we can give a nice payoff to public employees… and we don’t even have to pay for it! It pays for itself!
[cough]
Anyway, back to McMahon’s comments:
Oblivious to the rising pension cost trend, legislators in both parties have shown their willingness to pander to public-sector labor unions demanding a rollback of the cost-saving reforms enacted as part of two new pension benefit “tiers” enacted in 2010 and 2012.4 Expect to hear the unions’ crude slogan— “Tier 6 Sucks”— repeated early and often around the State Capitol in 2026, a statewide election year. If the union lobbying campaign succeeds, the resulting cost to taxpayers (spread across the New York City and school district pension plans as well) will make the coming ERS and PFRS increase look like peanuts.
Again, with climbing contribution costs… and then a disaster fomenting in Chicago and Illinois from them undoing their own cost-saving reforms… maybe they won’t be able to see their way to buying votes.
Who knows?
Divestment Crap: Enjoy Your Mayor-to-Be, New York City!
Oh, this one should be fun.
NY Post, 8 Sep 2025: Zohran Mamdani wants to divest NYC pension investments from Israel if elected mayor
Zohran Mamdani said he supports divesting New York City pension funds from Israel if elected mayor.
“I think we should not have a fund that is invested in violation of international law,” Mamdani said during a Sunday interview on CBS2 New York’s “The Point with Marcia Kramer.”
“I think that the current comptroller’s approach [Brad Lander] — as he has taken it with Israel bonds — is the right approach,” he added when pressed on the issue.
Oh, is he going to govern according to “international law” in NYC? Is rent control part of “international law”? I bet he’s just angling for invitations to the best parties when the UN General Session is on.
But I decided to do a little looking into New York pensions and Israeli bonds…
I found this 2023 press release:
13 Oct 2023, New York STATE Comptroller press release: DiNapoli: NY State Pension Fund Purchases $20 Million in State of Israel Bonds
The New York State Common Retirement Fund has purchased an additional $20 million in Israel bonds offered by Development Corporation for Israel, New York State Comptroller Thomas P. DiNapoli announced today. The purchase brings the state pension fund’s holdings in Israel bonds to $267.8 million.
“New York state’s pension fund buys Israel bonds because we have confidence in the spirit of innovation and tenacity of Israeli people and in the strength of our investments there,” DiNapoli said. “In addition to providing a steady return for our pension fund’s members, Israel bonds help support one of our nation’s strongest allies. I am heartened that so many other public funds have stepped forward to purchase bonds and support Israel, the only democratic government in the region, during these tragic and challenging days.”
New York joined Pennsylvania, Florida, Illinois, Texas, Ohio and other public U.S. funds in purchasing $150 million in Israel bonds in recent days.
Brad Lander divested the city pensions’ investments from Israel bonds… but not exactly. He let the bonds mature and they weren’t reinvested in Israel bonds.
Because the pensions weren’t invested in sovereign bonds in general. (I was going to say — it doesn’t seem like an appropriate asset class.)
22 July 2025, The City: How Israel Bonds Became a Local Campaign Litmus Test
The seemingly endless squabbling between Mayor Eric Adams and Comptroller Brad Lander has now reached the esoteric issue of the city’s pension funds’ recent selloff of Israeli government bonds.
The issue burst into public view earlier this month after First Deputy Mayor Randy Mastro sent a letter to Lander demanding a full accounting of why the comptroller’s office did not reinvest in State of Israel bonds as they matured.
”This divestment, occurring amid a global ‘Boycott, Divestment and Sanctions (BDS)’ campaign against Israel, appears to be in furtherance of that BDS campaign, regardless of the adverse financial consequences for city pensioners,” Mastro pointedly wrote, adding that the action raised questions about whether Lander followed his fiduciary duty.
I think it’s reasonable to ask the question either way, whether it’s appropriate to but an investment OR divest from it due to the political popularity of the moves.
As I often say when I see these people playing with pension money, this sort of play makes me argue that public pension funds shouldn’t exist at all.
These funds are intended to be there to support public employees’ retirement benefits, not to posture — if these billions weren’t there for the politicians to throw around under their power, then we wouldn’t have this crap.
Back to The City:
Lander says that when he took office four years ago he discovered that some $30 million in Israeli bonds had been purchased not by the managers who oversee long-term bonds but by what is called the “short term” managers, who are supposed to be buying assets that are paid off within a year.
When he was re-buying assets to replace the matured bonds, he may have seen the Israel bonds on offer were at a yield that were not appropriate for the portfolio.
Lander really does have financial experience.
That said, he’s also a leftist politician, so I had been suspicious.
But then there’s this:
Lander declines to speculate on why previous comptrollers proceeded that way. However, by having the short-term desk buy the bonds, comptrollers avoided the need to ask the pension trustees whether they would approve Israel bonds. The trustees of the city’s five pension funds, who are appointed by the comptroller, mayor and the unions who represent the workers, have the final say over investments.
He also discovered that the city did not own any other foreign government bonds, known as sovereign debt.
So here’s the difference between Lander and DiNapoli.
DiNapoli is the sole trustee of the state pension funds. So he can decide, on his own, “Hey, let’s buy a bunch of long-term Israel bonds!” without having to get a board of trustees to agree.
You can see the issue the mayor of NYC would also have if he wanted to divest the pension funds. To be sure, he could appoint trustees… so could others.
So the government bonds are gone, and they have around $315 million of investments in Israeli companies and real estate currently, out of a total of NYC pension funds of over $225 billion.
Inspectors General for Public Pensions?
3 Sept 2025, WSJ, Op-Ed, Mark Lee Greenblatt: Public Pension Funds Need Independent Inspectors General
Wherever there's public money, someone is trying steal it. Public pension funds, which manage $6.1 trillion, are no different. Improper disability claims, falsified records and outright fraud have led in recent years to prosecutions and recovered funds. Some larger states and systems have internal audit and ethics offices to investigate waste, fraud and abuse. But smaller states and systems often lack the resources or independence to pursue mistakes and wrongdoing. Every public pension fund needs some form of independent oversight.
These funds are inherently at risk of fraud. In May, the Los Angeles County Employees Retirement Association filed suit against a former information-technology security official for fraud, conflicts of interest and breach of fiduciary duty. In July, a former risk official with the Iowa Public Employees' Retirement System sued the state with allegations of unfair termination for raising concerns about the fund's investments and bookkeeping.
California retirees are seeking an outside audit of the $530 billion California Public Employees' Retirement System. They've hired a forensic investigator and asked legislators for an inspector general to monitor Calpers. Many states have established these offices to promote accountability and efficiency. Some have a statewide inspectors general, while others have oversight offices within agencies to bolster transparency and accountability.
….
There's no downside to having independent inspectors general for public pensions. Establishing a proactive watchdog -- within a retirement system or as part of an existing state inspector general office -- would have a deterrent effect. It would use data to detect vulnerabilities before fraud occurs. Inspectors general are independent representatives of taxpayers, focused exclusively on facts, and not beholden to boards, trustees, staff, retirees or politicians. They are transparent and empowered to issue unvarnished reports available to everyone.
The main downside that happens with inspectors general is that people get jaded — stuff gets found, or the IGs get stonewalled and can’t do their jobs — but then nothing occurs.
So then people get annoyed.
The other possibility, of course, is that somebody opens a lawsuit based on what the IGs find… and a bunch of time and money is possibly wasted. Especially if the IG tries to overdramatize something… maybe for political reasons? Because yeah, it’s not like these people are political neophytes.
Ed Siedle Investigates… Some Links
Speaking of people who do investigations, Ed Siedle did finally get his hands on some documents, and I downloaded them.
Before I get to that, the CalPERS investigation mentioned is announced here:
I’m curious about this one, which I will give some links after I quote this kind of elaborate press release… (which is from the retired employees association magazine):
So, here’s the deal, the President’s letter… I saw a familiar face!
Ah, Margaret Brown! There was this whole DRAMA that went on between her and CalPERS staff…
Now, what is very grimly amusing to me, when it comes to Ed Siedle’s serial investigations, is that almost always, there is a commonality in the problems, which none of the management and trustees (and definitely not the actuaries) can admit:
The central problem is the expensive promises they’re making, and how they’re trying to fund them on the cheap.
Siedle and crew go seeking problems in the assets and operations, and there are problems in some of these places, but what spurred the problems were the unfulfillable promises. So ever-riskier assets were pursued. And some corners were cut.. and.. and…
They think that there was some magic pixie dust that would have fixed the pension problem. Well, the magic pixie dust was much higher contributions and/or lower benefit promises. But the politicians didn’t want to go that route.
That said, some particular nutty stories have gone on in California over the years. Margaret Brown was part of some of them.
Ed Siedle did get a hold of some of the private asset/hedge fund documents for the Ohio Teachers fund, as documented here:
I downloaded the documents. Reading the docs… I haven’t found anything interesting (yet). But it’s good to get some of this in the open. I can talk more about this another time, because this is one of the many controversial items. I am skeptical that the public pensions should be involved in these arrangements - too many opportunities for graft and corruption.
But back to CalPERS — It’s the largest (non-federal) public pension fund in the U.S.
And it’s been underperforming:
A 1 percentage point shortfall over a long period can make a big difference.
CalPERS had ALL THESE PROBLEMS with management and getting a new CIO and just executive replacement in general. There were power struggles on the board. There was also bullshit about their “green investments” on which they lost a bunch of money, but the prior CIO preened himself over his great virtue, and he’d “lose $1 billion again”.
Now, some might be saying to me that that was over a decade ago… but pensions are a long-term investment situation.
And it is one of the largest principal-agent problems out there.
This is the largest pension fund being actively managed in the U.S. — and people were using it as their political play-toy?
Yeah, perhaps somebody should be investigating it. I wonder how far back they’ll want to look?
Old infographic I made:
They have $500 billion in assets now.
Prior CalPERS STUMP Posts
This is absolutely not exhaustive (nor in chronological order).
26 Sept 2023: Calpers Follow-up: Hedge Fund Exit and Private Equity Rise -- and a Look at an Ohio Lawsuit
20 Sep 2023: Does Anybody Want to be the Calpers CIO?
15 June 2020: Public Pensions, Leverage, and Private Equity: Calpers Goes Bold
21 Sep 2016: California Dreamin' of Ever Closing Their Pension Gap
9 Oct 2016: California Watch: Calpers Valuation, Exits, and Governance
23 Dec 2016: Calpers: Moving Targets, in More Way than One
16 March 2018: Around the Pension-o-Sphere: FBI, California, Kentucky, and New Jersey
24 Mar 2018: Around the Pension-o-Sphere: Illinois, California, Shareholder Activism, and Puerto Rico
11 May 2018: Around the Pension-o-Sphere: Kentucky Lawsuit, Crazy Calpers, MEPs, and More - the management issues start earlier, but this may be where you’d like to dip in for the crazy
24 May 2018: California Crazy: Governance and Management Problems at Calpers - and definitely this post is full-on crazy
12 Sept 2018: Trying to Deflect the Blame: Calpers and the Catholic Church (and Trump!) - I enjoyed myself too much with this one
27 Sept 2018: Calpers Craziness: A Performance Review... and an Investigation?
October 2018: Calpers Quickie: President Pushed off the Board Due to ESG Over Pension Security
8 Sept 2020: Calpers Governance Watch: Fallout from ex-CFO Meng Resignation
21 Sept 2020: Reading the News with Meep: Illinois Pensions and Madigan, Calpers to Restrict New CIO, New Jersey Millionaire's Tax and More!
16 Sept 2014: Public Pensions Watch: California pension fund pulling out of hedge funds
17 Sept 2014: Public Pensions Watch: Reactions to Calpers Pulling Out of Hedge Funds
18 Sept 2014: Public Pensions Watch: More Reactions to Calpers Pulling Out of Hedge Funds
27 March 2019: Divestment and ESG Follies...and Heroes: YAY for President of Brown University, Oil, and Private Prisons — CalPERS tells divestment activists to get lost
29 March 2018: Around the Pension-o-Sphere: Fiscal Reporting Bootcamp, Transparency, Divestment Hero, and More — again, CalPERS don’t play divestment
21 Nov 2016: California Consequences: Turns Out, Pension Benefits Can Be Cut
20 Dec 2018: Divestment and ESG Follies: Mandating Women on Corporate Boards - there’s a bit on ribbons to support the CalPERS CEO in here
Apr 2020: STUMP Classics: The Fragility of Public Pensions Due To Can't-Fail Thinking
I keep asking the question: "When does the music stop for New York, California, and Chicago (my favorite to whip)?"