A bit of history on the VSF.   The city and the below listed unions
negotiated this program in good faith.   It has worked for both sides.   It
appears its now being used as a public relations ploy against the unions by
the MAYOR and his underlings.   It makes you wonder does the administration
have any honor. 

'Christmas Bonuses' And Other Wicked Fables   (Variable Supplements Fund)
By RICHARD STEIER — Friday,, March 20th, 2009
˜The Chief / Civil Service Leader "Razzle Dazzle" Editorial
(Edited for brevity and NYPD pertinence)


Two days after Mr. Bloomberg voiced his concerns that those persons of
means less fickle than he is about the city's virtues might abandon it, the
New York Post began a three day crusade against its version of undeserving
slackers: retired cops and firefighters.

A Sunday feature on the sizable disability pensions some firefighters were
receiving was followed the next day by an article on what the paper called
"Christmas bonuses" for police and fire retirees in the form of
$12,000-a-year Variable Supplements Fund payments each December. And the
lead editorial in Tuesday's Post tied it all together under the headline,
"Five-Alarm Payouts."

It referred to the VSF payments as "the legacy of a decades-old sweetheart
deal," noted the Mayor was battling grimly in Albany to discontinue the
practice for future cops and firefighters, and concluded by hoping "it's
not too late to stop the coming pension tsunami from swamping the city
completely."


Partly Based on a True Story

It was a remarkable performance in the service of Mr. Bloomberg, although
as is sometimes the case with The Post, it was also at odds with the facts.
Which brought to mind the observation by a fellow alumnus of the paper,
Paul Schwartzman, that, "If journalism is the first rough draft of history,
the Post is the first rough draft of journalism."

Start with the first two paragraphs of the March 9 VSF story:

"So-called 'Christmas bonuses' given to NYPD and FDNY retirees as pension
'sweeteners' topped $450 million last year and are poised to be an
extra-sour burden on recession shocked city coffers.

"Deft bargaining by union officials 40 years ago won their retirees a share
of the returns of their pension funds' investments—and in a later amendmentt
to the deal, the unions masterfully negotiated a fixed-cash payment whether
the funds experienced a boom or a bust."

It's an interesting concept: take a well known situation—the city's not in
great shape and police andd fire retirees receive cash payments in addition
to their pensions—spriinkle in some likely-sounding but utterly false claims
about the history of the VSF, and stir, hopefully bringing public
discontent to a boil.

The truth, as is invariably the case, is quite a bit more complicated.

For one thing, the implication in those paragraphs is that the unions
snookered the city to get the original benefit and then played a second
mayoral administration for chumps so that their members got all the gravy
while the only ones at risk were the taxpayers. It relies in part on
caricatures of Mayor John Lindsay—under whose administration the VSF
originated—as as too generous to the unions, and of Ed Koch—who was there when
the conversion to a deffined benefit occurred—as a softie when it came to
police and fire bargaining. Neither of those stereotypes has much relevance
to what actually happened.

The original deal came about at the city's urging because the Lindsay
administration wanted to be able to invest money from the Police and Fire
Pension Funds in the stock market and needed the approval of the unions.
The unions wanted an improvement in the formula used to calculate what
percentage of salary would determine pension allowances for their members.


City Actuary Proposed VSF

The matter went before an arbitrator, former United Nations Ambassador
Arthur Goldberg, and during the discussions, the Chief City Actuary at the
time, Jesse Feld, proposed as an alternative that the VSF be created, with
funding to be provided only in years when the performance of stock investments topped that of the city's bond holdings by a specified percentage. The unions decided this was acceptable, and Mr. Goldberg incorporated it in his award. The funds were created by a state law passed in 1970 that made them retroactive to Oct. 1, 1968.

So much for the "sweetheart deal" described in the Post editorial. In fact,
while the profits were good enough to provide "skims" into the VSF for the
first two years of the funds' existence and an initial benefit of $40 per
month for "service" retirees (those who receive disability pensions are
ineligible for the VSFs, even if they worked the 20 years mandated to
qualify for a full regular pension), an 11-year dry spell followed.


A Mutual Desire for Change

The lack of growth in the funds brought some restlessness within the police
and fire ranks, which intensified when at one point fire officers were
unable to receive benefits because there wasn't enough money in their
union's fund in the early 1980s. Then a five-year stretch of robust
stock-market performance swelled the VSF coffers, producing a climate in
which both sides were looking to make a change.

By the time the Patrolmen's Benevolent Association was negotiating for a
contract that would take effect retroactive to July 1, 1987, the VSF
payouts had risen to $150 a month, but retirees and some active members
were convinced that much more could be paid. The city and union trustees
who oversaw the police and fire VSF funds were constrained by the
recommendations of the City Actuary, who had to be certain that the funds
would not have their reserves exhausted if the stock market suddenly
tanked.

While this was frustrating to recipients, Mayor Koch found it exasperating
that when the skims came, the retirees did well but the city could not take
advantage of the boom times to pull out excess funds to improve services.
He instructed his chief negotiator, Bob Linn, to seek a deal with the PBA
that would pave the way for the city to have pre-determined costs in return
for set payments, limiting what it would have to share during bull markets.


'Traded Uncertainty for Certainty'

A reminder of the way the market could turn came with the October 1987
crash, and probably helped convince the PBA that there was something to be
said for a defined benefit payment even if it potentially surrendered a
bigger share if the boom times came again. Then-union President Phil Caruso
reached an agreement in May 1988 under which the city gained control of the
PBA fund by agreeing to raise the annual benefit from $1,800 to $2,500,
with $500 increases in each year to follow until a peak was reached of
$12,000 in 2007. Mr. Linn said, "We were both willing to trade uncertainty
for certainty."

Some other police and fire union leaders had reservations about the
trade-in, for reasons that went beyond the city placing a different value
on the shift for the PBA than for their members. Within the Uniformed
Firefighters Association, a vocal group sprang up in a Bronx firehouse that
laid out in detail why it believed the deal did not make financial sense
for firefighters.

Mr. Linn predicted at the time that the city would realize its greatest
savings from the trade-in over the long haul, and a decade later that
prediction seemed to have been borne out with a vengeance. During Rudy
Giuliani's second term as Mayor, it was estimated that the city's share of
the pension funds' profits during the stock-market boom of the late 1990s
was $4 billion greater than it would have been had the unions refused to
make the conversion to a defined-benefit payment. There were those who
joked that the city ought to erect statues of Mr. Linn and former Deputy
Budget Director Howard Green—who put together the calculattions for the
trade-in—alongside Nathan Hale's at the west entrance of Cityy Hall.


No Skims If Funds Were Flush

Mr. Green also had the foresight to get a key component into the VSF
legislation that maximized city profits during the boom: a "sluice gate"
provision under which it was only required to skim off profits from stock
investments if the funds' liabilities exceeded their assets at the time.

Then the market cooled off at the beginning of this decade, and reached
what Mr. Bloomberg has described as meltdown status over the past year. No
longer does it seem that the unions got taken and the city made out like
bandits, and the swing of the pendulum has served as a reminder that union
leaders' decision to "trade uncertainty for certainty" was a pretty good
one. Nobody would argue, however, that this amounts to a bonanza, unless
they were trying to create a straw man for the Legislature to knock down by
passing the Tier 5 pension proposal Governor Paterson put forward largely
at the Mayor's request. And Mr. Bloomberg has found a willing accomplice in
The Post.

"They have so much misinformation," UFA President Steve Cassidy said during
a March 11 interview. "They're lumping apples and oranges."

His counterpart at the PBA, Pat Lynch, didn't even mention the physical
liabilities of the potential change, instead focusing on how it would hurt
the Police Department's ability to recruit. (Mr. Bloomberg, whose agreement
with the union last summer brought starting salary—which had been $25,100
at the start of 20008—to slightly more than $40,000, is clearly hoping that
would-be cops are unaware of the money they would lose if the VSF was
eliminated for future hires.)


'Not Source of City's Problem'

"Furthermore," Mr. Lynch said in a statement, "the Variable Supplement Fund
has long been self-funded and still is today. It does not cost the city a
dime. Our pension is not the source of the city's fiscal problem and should
not be looked to as the solution."


A DROP From Mayor's Narrative

That little sweetener resulted from Deferred Retirement Option Plan
legislation passed in 2002 under which firefighters from that point on who
continued working after marking their 20th year on the job could "bank" the
VSF payment for each year they would have received it had they retired. In
other words, someone who would have been eligible to collect the bonus in
December 2002, when it was $9,500, but continued working by last December
would have accumulated $76,500 in his VSF "DROP" account.

It would have been a bit awkward for the administration to point this out
to The Post, however. For one thing, the DROP program was set up because
Mr. Scoppetta was concerned about retaining experienced staff after the
FDNY's top command under his predecessor was devastated by the loss of
veteran officers on 9/11.

For another, this "Christmas bonus" multiplied for as long as the affected
20-year veterans stay active was ushered through the Legislature at Mr.
Bloomberg's request.

He would undoubtedly agree with Mr. Fitzgerald and Mr. Hemingway that what
you leave out of a story is as important as what you put in.

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