Academic journal article Albany Law Review

The New York State Comptroller as Sole Trustee of the Common Retirement Fund: A Constitutional Guarantee?

Academic journal article Albany Law Review

The New York State Comptroller as Sole Trustee of the Common Retirement Fund: A Constitutional Guarantee?

Article excerpt

I. INTRODUCTION

In New York State, members of state and municipal pension funds enjoy a constitutionally protected right to their pensions. (1) As a result, if the pension fund were to see a devastating diminution of any kind, taxes statewide could skyrocket to meet this constitutional guarantee, since an ailing fund would need to seek assistance from the state legislature to meet its constitutional obligations. Many of the pension benefits guaranteed by this clause are drawn from the state's Common Retirement Fund (CRF)--a $156 billion fund (2) managed by the state comptroller as sole trustee. (3) This structure is unusual; most comparable public pension funds are managed by boards of trustees. (4)

For decades, critics and reformers have expressed concerns that a statewide elected official acting as sole trustee of such an enormous fund used to pay constitutionally guaranteed benefits is a recipe for abuse. (5) In fact, in many instances in New York State and elsewhere, pension fund fiduciaries have abused their authority and used pension fund business for personal and financial gain. (6)

The performance of public pension funds is also a recurring topic of scrutiny in the legal and financial academic disciplines. (7) There is evidence that public funds do not perform as well as their private counterparts, and although this can be explained in part by lower tolerance for risk, many commentators also suggest that poor performance is caused or exacerbated by inappropriate political influences. (8) For decades commentators have discussed problems involved with management of public funds by elected officials, concerned that "[t]he most obvious conflict of interest is that of the government official" who "would have compelling personal, political, and governmental reasons for favoring an investment of pension funds." (9) The status of the comptroller as an elected official, his or her role as sole trustee of the fund, the size of the Common Retirement Fund, and the fact that it exists to fund a constitutionally protected benefit all work together to emphasize the importance of an earnest and ongoing conversation in state government about CRF governance, including the comptroller's role as sole trustee of the fund.

The respective roles of the legislature and the comptroller must be addressed as part of any movement toward retirement fund reform. The comptroller's role as sole trustee is clearly laid out in statutory language, but there is some controversy as to whether the sole trustee model is itself guaranteed by the state constitution, which also grants the legislature the power to "define the powers and duties" of the state comptroller. (10) In light of recent scandals, some critics have raised the prospect of reorganizing the fund to include a board of trustees; as a result many news reports have asserted, without analysis, that a constitutional amendment would be required in order to alter the sole trustee model of the Common Retirement Fund. (11) Some of these reports bemoan the difficult process of amending the constitution and discount the prospect of creating a board, referring to the harsh "[p]olitical realities" of the "lengthy and politically daunting" constitutional amendment process. (12) Others call for the change even if it requires a constitutional amendment because they see the problem as so pressing. (13) It is certainly not so clear, however, that a constitutional amendment would be required; indeed it appears that legislation could be enacted to make the change without running afoul of the constitution.

The purpose of this Comment is to discuss the history and function of the New York State Constitution's nonimpairment clause and address whether it dictates the State Comptroller's role as sole trustee of the Common Retirement Fund. The Comment will discuss some of the events that have caused the decades-old call for reform of the Office of the State Comptroller, and will also briefly survey some of the arguments in favor of alternative approaches to investing the CRF. …

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