Wall Street Journal
May 2, 2014

 

For New York City Retirees, It's $300 Million That Never Was

Retired Police Officer, Firefighters Mistakenly Receive a Pension Payout; City Quickly Reverses

New York City mistakenly paid nearly $300 million from a pension supplement fund to more than 31,000 retired police officers and firefighters on Wednesday.

The city took steps to retrieve the $298,475,644 that was electronically deposited into the former employees' bank accounts and it is expected all of the funds will be retrieved by Friday, according to a statement by city Comptroller Scott Stringer.

Upon learning of the error, union and police officials warned the recipients not to spend the money.

Carolyn Kellerman, president of the independent watchdog agency Citizens Budget Commission, said the financial impact on the city is minimal, perhaps a day's interest on the money, because the mistake was discovered so quickly.

"But the big question is, what's going on there," she said. "What happened? It's stunning. It's really something that demands an explanation."

Mr. Stringer said he is "deeply concerned about the process that allowed this incident to occur," and said his office is working with the mayor's office "to complete an immediate and thorough investigation of its cause."

Mr. Stringer said the city's Financial Information Services Agency was responsible for making "an erroneous duplicate disbursement."

The money was sent to about half of the approximately 60,000 retirees eligible to receive it. On Thursday, while efforts were being made to retrieve the deposits, Mr. Stringer and New York Police Department unions released separate statements advising those who received the money not to spend it.

"Please note this payment was made in error and all transactions will be reversed by the close of business today," a statement posted Thursday on the NYPD's Patrolmen's Benevolent Association website stated.

The money came from the Variable Supplements Fund, which dates back to 1968, when John Lindsay was mayor. Its current form, however, was renegotiated by city officials and the fire and police unions in 1988.

Under the 1988 deal, the city was allowed to take $75 million from the pension supplement fund, which at that point topped $500 million, to pay for other city expenses, according to union and former city officials who negotiated the deal.

Among other concessions, the deal also gave the city greater latitude in investing the money from the fund in the stock market. Because of a stock market boom in the 1990s, union officials have estimated the city made more than $4 billion on the money.

In return, the city agreed to pay the retired officers and firefighters an amount that grew over the years to a maximum of $12,000, pre-tax, each year for each retiree. The amount is to be paid for life.

Traditionally, the money is paid out to the retirees on Dec. 15 of every year, which union officials have said allows the city to have control of the money for nearly the entire year.

Three years ago, the variable supplement made news when Mayor Michael Bloomberg called it a "Christmas bonus" and unsuccessfully campaigned for its end, saying it was costing taxpayers $200 million a year. Union officials refuted his math.

Write to Sean Gardiner at sean.gardiner@wsj.com