Pension reform has uncertain future

Former Comptroller Alan Hevesi marks his golden years in a prison cell serving one to four. But the emergency policy created to plug the holes in the pension system that allowed him and associates to illegally line their campaign or bank account is in limbo.

The reforms have an uncertain future.

Even though the pension scandal was the biggest case in the public career of Gov. Andrew Cuomo, who said cleaning up Albany would be his top priority once he became governor, his administration has chosen to keep extending the temporary ban on placement agents. The ban came after rogue agent Hank Morris steered investments from the state pension fund to enrich himself and Hevesi and make both of them felons.

“The ban needs to remain in effect on an emergency basis until such time as the amended regulation can be made permanent,” Insurance Superintendent James Wrynn said in an April 6 public notice in which he called for extending the temporary ban a ninth time since June 2009 to ensure the “integrity” of the pension system. Wrynn conducted a public hearing April 28, 2010 and industry leaders said the ban is overkill and blocks legitimate agents from working with the huge New York and New York City pension funds, harming many state-headquartered
financial institutions.

Asked why the ban remains temporary, Wrynn’s spokesman, David
Neustadt, said “that’s how we’re handling it.” Wrynn has been
reviewing comments of Blackstone Group, an investment company that used placement agents, and the Securities Industry and Financial Markets Association, which oppose the ban. Representatives for the two entities say a year after offering alternatives to a ban, Wrynn still is assessing what to do.

Blackstone suggests banning political donations from placement agents seeking to do business with the fund and requiring that all agents register with the state and fully disclose their contracts including fees and scope of services. Such disclosures would have made it difficult for Morris to operate clandestinely and hide $19 million in fees for essentially opening doors to Hevesi, said Peter Rose of Blackstone.

Small firms don’t have the resources to hire in-house marketing agents to drum up business and alert pension funds to new areas for investment, he said. SIFMA said the ban inadvertently limits access of smaller fund managers to pension funds and conflicts with federal rules.

A proposal by the Securities and Exchange Commission to ban
placement agents was withdrawn two years ago after numerous public pension plans knocked the idea.

“Lawyers and accountants have broken the law, but no one is proposing that their industry group be banned from dealing with public funds,” Minnesota Board of Investment Executive Director Howard Bicker told the SEC. He said without third-party agents his fund may never have known about a number of women-owned and
minority-owned investment opportunities.

Wrynn’s rule was developed even though Comptroller Thomas
DiNapoli administratively banned placement agents in April 2009.
Wrynn refined the regulation, for instance, by defining members of the comptroller’s family as anyone who lives in the same household as the comptroller. Cuomo’s office would not comment. DiNapoli’s office couldn’t say if the ban might be lifted.