PRICHARD, Ala. — This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.
Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.
Since then, Nettie Banks, 68, a retired Prichard police and fire dispatcher, has filed for bankruptcy. Alfred Arnold, a 66-year-old retired fire captain, has gone back to work as a shopping mall security guard to try to keep his house. Eddie Ragland, 59, a retired police captain, accepted help from colleagues, bake sales and collection jars after he was shot by a robber, leaving him badly wounded and unable to get to his new job as a police officer at the regional airport.
Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. “When they found him, he had no electricity and no running water in his house,” said David Anders, 58, a retired district fire chief. “He was a proud enough man that he wouldn’t accept help.”
The situation in Prichard is extremely unusual — the city has sought bankruptcy protection twice — but it proves that the unthinkable can, in fact, sometimes happen. And it stands as a warning to cities like Philadelphia and states like Illinois, whose pension funds are under great strain: if nothing changes, the money eventually does run out, and when that happens, misery and turmoil follow.
It is not just the pensioners who suffer when a pension fund runs dry. If a city tried to follow the law and pay its pensioners with money from its annual operating budget, it would probably have to adopt large tax increases, or make huge service cuts, to come up with the money.
Current city workers could find themselves paying into a pension plan that will not be there for their own retirements. In Prichard, some older workers have delayed retiring, since they cannot afford to give up their paychecks if no pension checks will follow.
So the declining, little-known city of Prichard is now attracting the attention of bankruptcy lawyers, labor leaders, municipal credit analysts and local officials from across the country. They want to see if the situation in Prichard, like the continuing bankruptcy of Vallejo, Calif., ultimately creates a legal precedent on whether distressed cities can legally cut or reduce their pensions, and if so, how.
“Prichard is the future,” said Michael Aguirre, the former San Diego city attorney, who has called for San Diego to declare bankruptcy and restructure its own outsize pension obligations. “We’re all on the same conveyor belt. Prichard is just a little further down the road.”
Many cities and states are struggling to keep their pension plans adequately funded, with varying success. New York City plans to put $8.3 billion into its pension fund next year, twice what it paid five years ago. Maryland is considering a proposal to raise the retirement age to 62 for all public workers with fewer than five years of service.
Illinois keeps borrowing money to invest in its pension funds, gambling that the funds’ investments will earn enough to pay back the debt with interest. New Jersey simply decided not to pay the $3.1 billion that was due its pension plan this year.
Colorado, Minnesota and South Dakota have all taken the unusual step of reducing the benefits they pay their current retirees by cutting cost-of-living increases; retirees in all three states are suing.
No state or city wants to wind up like Prichard.
Driving down Wilson Avenue here — a bleak stretch of shuttered storefronts, with pawn shops and beauty parlors that operate behind barred windows and signs warning of guard dogs — it is hard to see vestiges of the Prichard that was a boom town until the 1960s. The city once had thriving department stores, two theaters and even a zoo. “You couldn’t find a place to park in that city,” recalled Kenneth G. Turner, a retired paramedic whose grandfather pushed for the city’s incorporation in 1925.
The city’s rapid decline began in the 1970s. The growth of other suburbs, white flight and then middle-class flight all took their tolls, and the city’s population shrank by 40 percent to about 27,000 today, from its peak of 45,000. As people left, the city’s tax base dwindled.
Prichard’s pension plan was established by state law during the good times, in 1956, to supplement Social Security. By the standard of other public pension plans, and the six-figure pensions that draw outrage in places like California and New Jersey, it is not especially rich. Its biggest pension came to about $39,000 a year, for a retired fire chief with many years of service. The average retiree got around $12,000 a year. But the plan allowed workers to retire young, in their 50s. And its benefits were sweetened over time by the state legislature, which did not pay for the added benefits.
For many years, the city — like many other cities and states today — knew that its pension plan was underfunded. As recently as 2004, the city hired an actuary, who reported that “the plan is projected to exhaust the assets around 2009, at which time benefits will need to be paid directly from the city’s annual finances.”
The city had already taken the unusual step of reducing pension benefits by 8.5 percent for current retirees, after it declared bankruptcy in 1999, yielding to years of dwindling money, mismanagement and corruption. (A previous mayor was removed from office and found guilty of neglect of duty.) The city paid off its last creditors from the bankruptcy in 2007. But its current mayor, Ronald K. Davis, never complied with an order from the bankruptcy court to begin paying $16.5 million into the pension fund to reduce its shortfall.
A lawyer representing the city, R. Scott Williams, said that the city simply did not have the money. “The reality for Prichard is that if you took money to build the pension up, who’s going to pay the garbage man?” he asked. “Who’s going to pay to run the police department? Who’s going to pay the bill for the street lights? There’s only so much money to go around.”
Workers paid 5.5 percent of their salaries into the pension fund, and the city paid 10.5 percent. But the fund paid out more money than it took in, and by September 2009 there was no longer enough left in the fund to send out the $150,000 worth of monthly checks owed to the retirees. The city stopped paying its pensions. And no one stepped in to enforce the law.
The retirees, who were not unionized, sued. The city tried to block their suit by declaring bankruptcy, but a judge denied the request. The city is appealing. The retirees filed another suit, asking the city to pay at least some of the benefits they are owed. A mediation effort is expected to begin soon. Many retirees say they would accept reduced benefits.
Companies with pension plans are required by federal law to put money behind their promises years in advance, and the government can impose punitive taxes on those that fail to do so, or in some cases even seize their pension funds.
Companies are also required to protect their pension assets. So if a corporate pension fund falls below 60 cents’ worth of assets for every dollar of benefits owed, workers can no longer accrue additional benefits. (Prichard was down to just 33 cents on the dollar in 2003.)
And if a company goes bankrupt, the federal government can take over its pension plan and see that its retirees receive their benefits. Although some retirees receive less than they were promised, no retiree from a federally insured plan in the private sector has come away empty-handed since the federal pension law was enacted in 1974. The law does not cover public sector workers.
Last week several dozen retirees — one using a wheelchair, some with canes — attended the weekly City Council meeting, asking for something before Christmas. Mary Berg, 61, a former assistant city clerk whose mother was once the city’s zookeeper, read them the names of 11 retirees who had died since the checks stopped coming.
“I hope that on Christmas morning, when you are with your families around your Christmas trees, that you remember that most of the retirees will not be opening presents with their families,” she told them.
The budget did not move forward. Mayor Davis was out of town.
“Merry Christmas!” shouted a man from the back row of the folding chairs. The retirees filed out. One woman could not hold back her tears.
After the meeting, Troy Ephriam, a council member who became chairman of the pension fund when it was nearly broke, sat in his office and recalled some of the failed efforts to put more money into the pension fund.
“I think the biggest disappointment I have is that there was not a strong enough effort to put something in there,” he said. “And that’s the reason that it’s hard for me to look these people in the face: because I’m not certain we really gave our all to prevent this.”
New York state and local governments' liabilities for retiree health coverage run to the hundreds of billions of dollars -- a burden that's only now coming into full view.
Governments in the state spend billions a year on health-insurance for their retired employees -- a benefit that will never be available to the vast majority working in the private sector.
Unlike pensions, which are at least partly pre-funded through large investment pools, retiree health care in New York's public sector comes out of annual budgets on a "pay-as-you-go" basis.
In New York City alone, the tab for that has risen 50 percent in the last five years. It'll hit $1.8 billion in fiscal 2011, and is expected to grow another half-billion dollars in the next three years.
But the pay-go expense of retiree health insurance -- which accountants call "Other Post-Employment Benefits," or OPEB -- is just the tip of a massive iceberg. Thanks to a new accounting standard, we're finally starting to learn the full, long-term cost of the public sector's retiree health-care promises.
What's emerging from the murky depths of government financial reports is a potentially monumental burden on future generations of New Yorkers -- a burden in addition to the cost of public pensions.
As detailed in a new study by the Manhattan Institute's Empire Center, unfunded OPEB liabilities in New York include:
* $60 billion for the state government.
* $13.8 billion for the state's 20 largest counties.
* And $6.5 billion for the top 20 school districts.
New York City's unfunded OPEB liability of $62 billion was tied with the state of California's for the largest in the country as of mid-2008. The Metropolitan Transportation Authority alone has amassed an unfunded liability of more than $13 billion.
Based on totals for the biggest pubic employers, I estimate that the unfunded OPEB liability for every level of government in New York comes to at least $205 billion -- equivalent to more than three-quarters of state and local bonded indebtedness.
Since Medicare is the primary coverage for Americans over 65, why is OPEB so expensive? First, most government employees retire early -- decades early, in the case of cops and firefighters. Second, most government plans provide backup for Medicare, including reimbursement of the $111-a-month Medicare premium.
The accounting rule doesn't require governments to pay their unfunded OPEB liabilities all at once, but it does oblige them to report whether they're making progress in pre-funding the benefit over a 30-year "amortization" period. The longer they do nothing about it, the bigger the number that hits their balance sheets.
In the two years since the new accounting rule took effect, the unfunded liability of New York's state government has grown by $8 billion. At this rate, within 10 years, the state's liabilities will exceed its total assets -- a condition accountants call "balance-sheet insolvency."
New York City is already there. Unlike other large governments, it chose not to spread its theoretical catch-up cost over 30 years. Instead, with breathtaking transparency, the city has booked its entire OPEB liability all at once. The result: As of fiscal 2008, the city government's balance sheet showed negative net assets of $97 billion.
Investors in city bonds apparently assume that the municipal OPEB obligation isn't really binding in the same sense as general obligation debt. If so, someone needs to break the news to municipal labor unions -- whose members do assume they'll receive lifetime health coverage if they retire from the city payroll. Other public employees around the state no doubt assume the same.
As these employees continue to accrue benefits, the cost is being shifted to future generations. This is why it is essential for elected officials to begin confronting the full financial implications of their retiree health-care promises.
The good news is that retiree health benefits, unlike pensions, aren't guaranteed by the state Constitution. Elected officials can still change course by restructuring health benefits for both current retirees and active employees.
How to burst this bubble? Early retirees in the public-sector should be required to pay a larger share of their premiums, and those over 65 should at least pay their Medicare premiums. Younger workers should be shifted into retirement medical trusts, supported by matching contributions from employers and employees, which would take the obligation off the backs of taxpayers.
The next governor and Legislature should move quickly to repeal a recent law that hinders such changes in school-district retiree benefits. The state Taylor Law, which has long prohibited collective bargaining of pension benefits, should be amended to prohibit collective bargaining of retiree health care, as well.
It's time to stop shoving massive, hidden costs onto the backs of future taxpayers.
E.J. McMahon directs the Man hattan Institute's Empire Center for New York State Policy. ejm@empirecenter.org
ALBANY — Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.
And, in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund.
As word of the plan spread, some denounced it as a shell game and a blatant effort by state leaders to avoid making difficult decisions, like cutting government spending or reducing pension benefits.
“It’s a classic Albany example of kicking the can down the road,” said Harry Wilson, the Republican candidate for comptroller, who holds an M.B.A. from Harvard.
Pension costs for the state and municipalities are soaring, a result of enhanced retirement benefits for public employees and the decline in the stock market over the past two years. And, given declines in tax revenue and larger budget shortfalls, the governments are struggling to come up with the money to make the contributions.
Under the plan, the state and municipalities would borrow the money to reduce their pension contributions for the next three years, in exchange for higher payments over the following decade. They would begin repaying what they borrowed, with interest, in 2013.
But Mr. Paterson and other state officials hope the stock market will have rebounded to such a degree by that time that the state’s overall pension contribution burden will have been reduced.
The maneuver would cost the state and local governments about $1.85 billion in interest payments, according to an estimate by the State Senate, though a number of factors could drive interest payments up or down.
Another oddity of the plan is that the pension fund, which assumes its assets will earn 8 percent a year, would accept interest payments from the state that would probably be 4.5 percent to 5.5 percent.
This would be only the second time the state has borrowed money from its pension fund, and it would involve much more money than the previous time, which occurred in the aftermath of the Sept. 11 terrorist attacks. New York State faces a $9.2 billion deficit this fiscal year, which began on April 1, and the budget is already more than two months late. The governor and legislative leaders are under pressure to make structural changes that will bring new discipline to state spending, but few expect them to do so.
Instead, they are expected to rely heavily on borrowing, tax or fee increases and an array of one-time maneuvers, like tapping the coffers of public authorities.
The governor and Comptroller Thomas P. DiNapoli back borrowing against the pension system, and a tentative agreement to do so was reached after negotiations on Thursday among key lawmakers and the governor’s representatives. The plan excludes New York City, which has its own pension system.
The initial plan in the governor’s budget called for the borrowing of up to $9 billion over the next six years.
Under the agreed-upon plan, the state would be authorized to borrow $1.5 billion to $2 billion over the next three years, according to forecasts provided by the governor’s office and the Senate. Municipalities would be allowed to borrow nearly $4 billion, according to a Senate estimate.
Senator Diane J. Savino, a Staten Island Democrat who negotiated the agreement for the Senate, said she pushed for a limit.
“There’s a question as to whether or not we should do this,” she said, adding, “I didn’t want to leave it open-ended, because six years is too long. The temptation is too great to do it over and over again.”
As part of the plan, the state and municipalities will have to make higher minimum payments into the pension system during bull markets to mitigate the impact of market crashes.
The governor’s plan, which was included in his executive budget in January, only highlighted the savings that the plan would reap over the next few years and included no mention of the long-term costs.
The amount borrowed would depend on various factors, like the stock market’s performance, which has fallen sharply since the fiscal year ended in March. The plan also allows state and local governments to choose whether to borrow from the pension fund each year, so much depends on whether future leaders choose to do so.
But with pension-contribution rates expected to climb over the next few years, political pressure is likely to be high to defer payments in a climate in which budget problems are coming from many directions.
Those pushing the plan are taking pains to avoid describing it as “borrowing,” saying they are seeking to amortize or “smooth” pension contributions. That is in part because they have distanced themselves from a plan proposed by Lt. Gov. Richard Ravitch that would have the state borrow as much as $6 billion for general operating expenses over the next three years in exchange for budget reforms.
“We’re not borrowing,” said Robert Megna, the state budget director and one of the governor’s top advisers.
Mr. DiNapoli, the comptroller, said: “We would view it more as an extended-payment plan.”
Asked about the pension plan, Mr. Ravitch said, “Call it what you will, it’s taking money from future budgets to help solve this year’s budget.”
Mr. Megna, when reminded that the plan envisioned delaying an obligation today and eventually paying it back with interest, softened his view in the process of a lengthy interview.
“I’m not going to sit here and characterize it as not a borrowing,” he said. “But it is an annual, relatively small borrowing we’re doing this year that were doing to get a modest savings.”
In 2004 and 2005, the state borrowed $655 million from the pension fund; it still owes more than $400 million.
An attempt by the city in 2005 to cut costs might end up hurting Utica’s budget for the upcoming fiscal year, officials say.
The city is in talks to settle a lawsuit with retired firefighters whose health benefits were altered in 2005 to require them to pay to keep their same plans, attorneys and city officials said this week.
City Comptroller Michael Cerminaro said the concern is what impact the potential settlement would have on the city’s budget and taxpayers.
If the amount of money required is a few hundred thousand dollars, the city should be able to absorb it from the general fund, Cerminaro said. But if the amount is too large, the city would have to borrow money to cover it by issuing bonds, he said.
“All these lawsuits that we’re losing, you’re just whittling away at all the money in your fund balance,” he said. “Especially now that money is tight, it’s just not a good sign.”
The lawsuit was filed on Dec. 9, 2005, in state Supreme Court after an Aug. 12, 2005, vote by the Utica Board of Estimate & Apportionment.
In an effort to cut city costs, board members voted to require retired firefighters to pay 25 percent of their health insurance premiums for the same plan they used to pay either nothing or 10 percent for – depending on when they retired, according to court records.
On Dec. 3, 2008, state Supreme Court Justice Charles Merrell ruled in favor of the retired firefighters.
The decision ordered that the firefighters receive their health plans at the original costs and awarded the firefighters monetary damage, according to court records.
The city filed an appeal on Jan. 5, according to court records.
More than 100 union-member firefighters who retired between April 1, 1984, to Nov. 15, 2005, and were younger than 65 as of Oct. 1, 2005, are affected by the lawsuit, according to court records. The lawsuit also affects the firefighters’ dependents, according to the records.
Utica Corporation Counsel Linda Sullivan-Fatata said the city filed the appeal in order to hold its legal rights, and in the meantime, settlement discussions have been taking place.
John Black, the firefighters’ attorney from Hinman Straub law firm in Albany, wouldn’t comment on details of the settlement talks.
Attorneys from the Roemer Wallens & Mineaux firm, which is based in Albany and has been representing the city, could not be reached.
Utica Mayor David Roefaro said he had no comment because the case is still in litigation.
‘A way to cut costs’
Timothy Julian, who was the mayor and a member of the E&A board at the time of the decision, said retired firefighters also had to the option to switch to cheaper plans that would have only required either a 10 percent contribution or no contribution. That was the same option active firefighters had at the time, he said.
The change was made because the city was spending more than $1.2 million per year on police and fire retirement benefits, Julian said.
“It was a way to cut costs to the city of Utica,” he said.
Julian said attorney James Roemer, who could not be reached for this story, told him he was certain the city would prevail in the matter, and Julian still believes the city had the right to make the change.
Utica Councilman Frank Meola, D-at-large, said he believes the city would have to pay out hundreds of thousands of dollars in order to cover a possible settlement.
“You’re talking again about a burden on the city budget,” Meola said.
From Albany , Move to Trim Pension Plans (NYPD 20 Year Pensions May Be On the Chopping Block)
By DANNY HAKIM and STEVEN GREENHOUSE – Wednesday, December 17th, 2008
‘The New York Times’ALBANY — Gov. David A. Paterson on Tuesday proposed a steep rollback of some of the generous pension benefits that have been an alluring feature of government work for decades, initiating a contentious reckoning with public employee unions.
The governor is proposing to reduce benefits for newly hired state and municipal workers, including those in New York City , by placing them in a new pension category. The New York City portion of the plan was developed by Mayor Michael R. Bloomberg.
“We’ve made too many promises and asked for too few sacrifices,” the governor said during an address to the Legislature. “We’re going to have to change our culture as we know it.”
The pension proposal was part of an austerity budget unveiled by Mr. Paterson.
One of the most controversial elements of the pension proposal would require the city’s police officers and firefighters to work 25 years and reach age 50 before they qualified for a full pension. At present, they can qualify for a full pension after 20 years of work, regardless of age — a coveted perk known as “20 and out.”
“Giving with one hand while taking away with the other simply makes no sense,” said Patrick J. Lynch, president of the Patrolmen’s Benevolent Association, who said that the city had only recently granted raises that made it more competitive with suburban police forces.
“This proposed change to the pension for future police officers will undo any progress made on compensation issues,” he said.
Under the governor’s proposal, workers in the state pension system would have to work until they were at least 62, instead of 55. The changes would apply to all state workers, many city employees, including teachers, and employees of a number of municipalities outside New York City .
New workers would also have to contribute 3 percent of their pay to the pension system for their entire career; currently the contributions stop after 10 years of service. And workers would no longer be allowed to use overtime in their last year of service to bulster their future pension payments.
Mr. Paterson’s move is reminiscent of steps taken by many American corporations over the last two decades, including changes initiated by the Big Three automakers several years ago. While states are grappling with shortfalls amid the deepening recession, New York ’s situation is particularly dire. Not only is the state faced with a $15.4 billion deficit, but New York ’s main financial engine, Wall Street, has been diminished by the credit crisis.
Further, while savings from pension changes take years to fully pay off, the value of pension funds has already been depleted by the market’s decline.
Still, the governor’s budget will not pass without a major battle in Albany , and changes to the benefits of city workers require approval by the City Council.
Union leaders have close ties to lawmakers and have expressed outrage that years of negotiated benefits are being swept aside.
And some of the proposals have been floated before, and rejected, though the global financial crisis may have changed the political calculus even for legislators in Albany .
In the city, pensions for uniformed service members — who include police officers, firefighters, sanitation workers and corrections officers — would vest after 10 years of service rather than the current 5, meaning that at least 10 years of work would be needed to qualify for even a minimal pension.
The city would also change the way pension payments were calculated to mitigate the common practice ofuniformed officersaccumulating hundreds of hours of overtime in their final year to maximize their future benefits.
The governor’s office also said that to help finance pensions, the bill would require all new uniformed workers in New York City to contribute 5 percent of their salary until they have 25 years of service. For many uniformed workers, that 5 percent contribution would be a significant increase above what they paid now.
The Bloomberg administration estimated that the proposed pension changes would save the city $5.4 billion over the next 20 years.
Mayor Bloomberg was quick to applaud the proposal.
“Right now,” he said “we are paying full retirement benefits to people in their 40s. And especially as people are living longer, we simply can’t afford to do it forever.
“Our pension system is one of those areas where spending has grown to an unaffordable rate. And we simply have to find a way to rein it in,” Mr. Bloomberg said at a news conference on Tuesday.
One New York City detective, a 19-year veteran who spoke on condition of anonymity so as not to violate Police Department rules, said that “20 and out” was “one of my whole reasons for becoming a police officer.”
“I would say undoubtedly 95 percent of the people who come on this job, that’s a significant reason why,” he said. “They don’t do it for the money.”
Public pension politics must change
PETER KIERNA, Times Union Copyright 2012 Times Union. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
By PETER KIERNAN, Commentary
Tuesday, November 20, 2012
Fiscal stress runs downhill and the collecting points are local governments.
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New York State's pension fund loses $7 billion in value, says Controller Thomas DiNapoli
Economy is blamed for 8.
DiNapoli Names Chief Investment Officer for $150.3 Billion State Pension Fund
New York State Comptroller Thomas P. DiNapoli today announced the appointment of Vicki Fuller as the new chief investment officer (CIO) for the $150.3 billion New York State Common Retirement Fund (Fund).
Despite Reforms, Retirement Costs For Governments Set To Skyrocket
WGRZ.com| byJoseph Spector| March 24, 2012
ALBANY -- Pension costs for local governments and agencies in New York are expected to skyrocket 59 percent in 2013 compared to last year as officials warn that recent reforms will provide no immediate relief to the mounting expense.
A review by Gannett's Albany Bureau of pension expenses for more than 3,400 governments and authorities in New York shows staggering growth in retirement costs for towns, village, counties and even local libraries since 2011.
While Gov. Andrew Cuomo last week reached an agreement to limit pension benefits for new public employees starting April 1, local leaders say it will do little to limit the big bills they face to fund workers' retirement in the coming years.
"It is going to be the downfall of certain communities," predicted Susanne Donnelly, supervisor of the town of Ossining in Westchester County.
The pension tab for taxpayers in New York soared from $2.2 billion in 2011 to nearly $3 billion this calendar year, an increase of 36 percent, Gannett's review of data obtained from the state Comptroller's Office found. The cost is estimated to grow to $3.5 billion by next year.
In blatant election-year pandering to civil-service unions, five lawmakers are pushing for pension increases for public workers — one of which would cost the city more than $1 billion a year.
As Mayor Bloomberg and Gov. Cuomo desperately search for ways to rein in runaway retirement benefits before the payouts plunge the city and state into bankruptcy, state politicians are trying to give away the store.
The most expensive perk would benefit thousands of cops, firefighters and correction officers, who would get an additional $12,000 a year. Currently, about 50,000 employees, those who retired after 20 years, collect the payment.
The proposed legislation extends it to those who retired earlier on three-quarters disability, as well as to their spouses and domestic partners. “It simply defies all logic that given the current fiscal climate, legislators are introducing bills to increase pension costs rather than reduce them,” said mayoral spokesman Mark Botnick.
The sponsors of the bill, state Sen. Andrew Lanza, a Republican, and Democratic Assemblyman Matthew Titone, both of whom represent Staten Island, claim the cost is “undetermined.’’ Lanza said the bill is not “currently active in the Senate because we’re still working out issues with cost.’’ Titone insisted he is not merely looking for union votes. “Some of these retirees live out of state and can’t even vote for me,’’ he told The Post.
Other bills would:
* Provide additional pension credits to workers who contributed 3 percent of their salaries toward their retirement for more than 10 years.
That bill is sponsored by Assemblyman Jack McEneny (D-Albany), who estimated it would cost state and local governments $50 million.
* Boost the accidental-death benefit by 3 percent as a cost-of-living increase for widows and children of uniformed officers.
The city estimates a price tag of $2.5 million for the bill, sponsored by state Sen. Martin Golden (R-Brooklyn).
* Allow “mandatory” overtime to be counted toward pensions, under a bill proposed by Assemblyman Michael DenDekker (D-Queens).
Cuomo is strongly opposed to that practice. City officials say the bill is a “bad precedent for pension reform.”
Meanwhile, Cuomo’s proposed pension overhaul would scale back taxpayer costs by shifting more pension costs to workers.
He claims the plan would save state and local governments $113 billion over 30 years. It would apply only to newly hired workers.
Currently, the state and localities pay nearly 90 percent of pension costs and the workers contribute just over 10 percent.
The Cuomo plan would split retirement costs more evenly. The taxpayer contribution would be reduced to 4.7 percent of annual payroll. The worker contribution would increase to 4 percent to 6 percent, based on salary size.Additional reporting by Candice Giove
ALBANY — Even as Mayor Bloomberg and key local leaders warned state Comptroller Tom DiNapoli yesterday that pension costs are bankrupting the state, a court ruling is blocking New Yorkers from seeing for themselves who’s getting the big-bucks retirement packages.
The state’s highest court has rejected a conservative think tank’s latest legal appeal to require that the New York City Police Pension Fund make public the names of its pensioners.
Other pension funds — which have made public such information in the past — are using the ruling to justify withholding their retirees’ names, too.
The Empire Center for New York State Policy, which sued to add city police pensioners’ names to its online posting of public employee retirees, plans to sue again, said lawyer David Schulz.
“The refusal to make available basic information that people need to understand local payrolls, to uncover fraud and to debate the pension system itself is outrageous,” Schulz said.
Meantime, Bloomberg and other local leaders attacked DiNapoli for resisting Gov. Cuomo’s proposal to cut pension benefits for future government workers — and save $113 billion over 30 years, by Cuomo’s estimate.
“We are concerned about your dismissal of local government leaders’ support for the Governor’s plan because its impact will not be felt immediately,” the group wrote DiNapoli. “The fiscal health of our state and localities in the long run necessitates pension reform now.”
The missive was signed by both Cuomo’s political allies, including Suffolk County Executive Steve Bellone, and his potential challengers, such as Westchester County Executive Rob Astorino.
The letter cited a 630 percent increase in pension costs to localities over the last decade and the paltry 1 percent public employees now contribute to their retirement benefits — which puts New York’s government workers below those in all but three states.
“Dismissing this crisis” will result in “higher taxes and service cuts,” the letter said.
Cuomo’s plan is vehemently opposed by labor unions. It would raise future government workers’ retirement age from 62 to 65, increase their contribution requirements from a maximum of 3 percent to as much as 6 percent and lengthen their vesting from 10 years to 12 — while offering as an alternative a 401(k)-style “defined contribution” plan portable after a year.
DiNapoli, who controls the state pension funds, has repeatedly argued 401(k)-style plans don’t provide adequate retirement security, but his aides say he believes a discussion about reducing benefits for future employees is “appropriate.”
Bowing to union pressure, legislators are proposing a sweeping pension bill that would allow thousands of state and city government workers to retire early with full benefits — at a cost of hundreds of millions of dollars to taxpayers, The Post has learned.
The early-retirement push clashes with Gov. Cuomo’s drive — backed by Mayor Bloomberg — to scale back pension costs.
The Assembly measure would allow public employees, including city teachers, to retire with full benefits at age 55 with 25 years of service.
Many public employees have to work at least 27 or 30 years before earning full retirement benefits. Others have to work until age 62 to qualify.
The bill’s sponsors admitted it would increase the state pension system’s cost by $167 million and boost city pension costs by tens of millions of dollars.
“I want to keep the idea of early retirement out there for discussion,” said Assemblyman Jack McEneny (D-Albany).
McEneny said the unions — particularly the Civil Service Employees Association and the Public Employees Federation, the two largest state government-worker unions — had urged him to champion the bill.
Other sponsors of the bill include Assembly Majority Leader Ron Canestrari (D-Cohoes) and members Keith Wright (D-Manhattan), Michael Cusick (D-SI), Nick Perry (D-Brooklyn) and Jeff Dinowitz and Carl Heastie, both Bronx Democrats.
Bloomberg and budget watchdogs slammed the massive pension sweetener as irresponsible.
“With pension costs crippling localities across the state, we should be looking at ways to reform the system, not for ways to balloon costs further,” said Mark Botnick, the mayor’s Albany lobbyist.
Said Maria Doulis, a researcher at the business-backed Citizens Budget Commission, “This bill is going in the opposite direction of what needs to happen to make pensions more affordable.”
Doulis said the bill, if approved, would undo pension changes that went into effect in 2010 to lessen costs.
McEneny said he opposes Cuomo’s pension proposal, which would offer a new 401(k)-style “defined contribution” retirement plan and a scaled-back traditional program. It would require newly hired workers to contribute more to their pensions and retire with full benefits later, at age 65.
The governor claimed the changes would save taxpayers $113 billion over 30 years.
But McEneny — who represents a capital-area district filled with public employees — claimed that the unions have not been brought into the discussions and that it’s too soon to impose more cuts after changes were implemented just two years ago.
He even held out hope that a version of his early-retirement bill could be part of a compromise in order to win union support for any pension give-backs.
“It could be,” McEneny said. “The early-retirement bill could be modified as part of a package on pension reform. If the pension system is tightened any more than it is now, there could be an early-retirement component.”
In the pension debate, it seems that the facts can’t hold a candle to a well-worn narrative.
Critics of the current defined-benefit retirement plans for state workers incorrectly assert that New York State’s pension system is financially sound only because of an unlimited amount of taxpayer money.
The truth is that the system is financially sound because New York has prudently managed its fund for more than 90 years.
The critics insist that pensions are unsustainable and unaffordable by portraying contributions in the worst possible light while ignoring the fact that, historically, 83% of all pension benefits come from investment returns. They insist we must reduce benefits for the next generation of workers by creating a new pension tier, while allowing these workers to move into a 401(k)-style defined-contribution retirement plan.
What worries me, as the fiduciary of the fund and as the state’s chief fiscal officer, is that the 401(k)-style plan being presented to employees as a “choice” is, in fact, a false choice. By making the proposed defined-benefit plan less attractive and allowing the employee contribution to the 401(k)-style plan to be optional, employees would almost surely be steered toward choosing the latter plan.
The result is that many younger people, whose retirement date is decades in the future, will undermine their long-term retirement security by making the decision not to contribute and thereby fail to properly plan for their retirement. Playing catchup just doesn’t work.
For those employees already in 401(k)s, it’s no secret that these plans are far more volatile than traditional pensions and have significantly higher fees for individuals. According to Boston College’s Center for Retirement Research, 401(k) plans lost a collective $1 trillion during the Great Recession.
On top of that, the cost to deliver a retirement benefit through a defined-benefit pension plan is 46% less than that through individual 401(k)-style plans, according to the National Institute on Retirement Security.
Policymakers should not knowingly push future generations toward inadequate retirement security. Those who have saved too little or have seen their 401(k)s collapse will rely on our state’s social assistance safety net.
The higher moral, social and economic costs of this to all of us is readily apparent.
On the other side of the coin, defined-benefit pensions help to stabilize our state’s economy. Close to 80% of New York retirees continue to live in New York State, resulting in an estimated $6.5 billion in spending, $9.5 billion in economic activity and $1.3 billion in property taxes.
Lest we forget, the more than 1 million members, retirees and beneficiaries of the state and local retirement system are taxpayers, too.
While I believe that it is appropriate to have a thoughtful, inclusive discussion about issues such as the level of pension contributions and ways to control overtime, it is inappropriate to lay the foundation to scrap our entire system in favor of something that will ultimately cost us more.
New York’s proposed move to a 401(k)-style plan just doesn’t make sense.
We are all in this together. Pitting government employees against the private sector is yet another false choice. As I have said over the past several months, it is time that we had a national conversation on retirement security to discuss what we, as a nation, must do to better prepare all Americans for their golden years.
It’s time to stop twisting the facts on New York’s public pension system and start talking about real solutions.
10 injured Newburgh ex-firefighters say pay was illegally cut
By Doyle Murphy Times Herald-Record Published: 2:00 AM - 02/08/12
CITY OF NEWBURGH — Ten injured retired Newburgh firefighters say the city illegally cut their pay when it negotiated salary cuts with active-duty firefighters. The city notified the men by letter in January 2011 that their checks would be adjusted to match a new contract between the city and IAFF Local 589, the union that represents city firefighters. The union had agreed to temporary 5 percent salary decreases. Attorney Stewart Rosenwasser, who is representing the injured firefighters, said his clients are separate from the union and never agreed to any new deal. "You cannot bargain away our rights," Rosenwasser said. Each of the firefighters retired as a result of injuries, earning state retirement benefits. Under the law, the city has to make up the difference between the state payments and what the men would have received as their regular salaries. Rosenwasser represented nearly the same group of firefighters in a previous lawsuit, winning a judgment that required the city to pay them longevity increases. Rosenwasser said their current argument is supported by state law that treats injured firefighters as a separate class. The city tried to get the case thrown out, but Orange County Judge Lawrence Ecker denied the motion in January and will require the city to respond to the firefighters' petition in writing by the end of February. Newburgh City Manager Richard Herbek said the firefighters take the good of new contracts but refuse to accept the bad. "It's outrageous," Herbek said. "You can't have it both ways." Herbek also criticized the law that treats injured firefighters differently from other government retirees. He said Newburgh pays $474,802 annually to 13 injured firefighters, including the 10 who have filed the lawsuit, and it's an unfair burden on a distressed city. Rosenwasser said the city has been willing to pay hefty legal fees just to hold on to 5 percent of the men's benefits for the two years of the decreases — a fight he expects the city to lose. Herbek said he didn't know the cost of the legal fees but defended fighting back against the firefighters and others who might challenge the city. "The city's got to protect itself," he said. "The city has got to protect its taxpayers. It's tricky business." dmurphy@th-record.com
Mayor nixes union plan to use reserve cash on wages instead of pension
By DAVID SEIFMAN City Hall Bureau Chief
Last Updated: 1:16 PM, February 4, 2012
Posted: 12:35 AM, February 4, 2012
In a bizarre political power play, city union leaders say they want to raid funds that Mayor Bloomberg set aside to cover massive pension costs to give workers raises instead, The Post has learned.
No dice, the mayor retorted.
Bloomberg said he’s being fiscally prudent by putting up to $1 billion in reserve to cover additional pension costs. He said the additional money dedicated to pensions was required by actions recommended by the city’s pension analyst.
Labor leaders were furious.
“We have unions that have been going two years without a contract,” said Harry Nenespoli, president of the Uniform Sanitationmen’s Association and head of the Municipal Labor Coalition.
City Actuary Robert North Jr. proposed reducing the assumed rate of return of the city’s five pension funds’ investments from 8 to 7 percent.
The lower the rate of return, the more the city has to chip in.
Anticipating North’s move, Bloomberg has socked away $1 billion in the budget to cover the added costs.
But the change requires approval from the state Legislature, where the unions wield influence.
Labor leaders are suggesting they will block the change in Albany. They want a higher rate of return so the city can devote more city funds to raises instead of pensions.
“I don’t know if the 7 percent number can be done without us,” Nenespoli said. “We have attorneys looking at it now. We feel it’s not necessary to go to 7 percent. In 43 cities [where the rate of return was reduced] it did not go down a full point.”
Sources said union leaders have discussed a 7.25 or 7.5 percent return rate, freeing up $500 million that they say could be used for raises.
North said the city pension payments to accommodate the change could be stretched out over 22 years, reducing this year’s initial payments to $575 million instead of $1 billion.
But Bloomberg opposes stretching the payments.
“What that really does is just move the costs to our children,” said the mayor. “Our children are going to have to pay everything we don’t pay now. So the city was trying to act responsibly — even more responsibly, I think, than the actuary.”
Under North’s stretch-out plan, the city would have to spend $850 million less over two years than it was planning to spend on pensions.
Labor leaders want the savings to plowed into pay hikes.
“The unions want to gobble that up,” said one city official.
Bloomberg said the current 8 percent rate of return on pension investments is overly optimistic, even irresponsible.
“It’s so ridiculous it doesn’t pass the laugh test,” the mayor said.
Lowering the rate to 7 percent, he said, “is still laughable, but at least it takes it in the right direction.”
$hy and retiring
Mayor Bloomberg has agreed to boost city funding for employee pensions to keep pace with lower returns on the funds’ investments. Union officials want to take that money and use it for raises.
* City’s pension cost for fiscal year 2012 is estimated at $7.8 billion.
* Mayor Bloomberg’s fiscal year 2013 budget includes a $575 million increase to fund pensions.
* City unions want to divert $500 million from increased pension funding to salary hikes.
One of the city’s rare victories in persuading Albany to corral pension costs has been overturned by a Manhattan judge, The Post has learned.
In a little-noticed decision issued on Jan. 20, state Supreme Court Justice Carol Edmead struck down a requirement that cops and firefighters hired after July 1, 2009, chip in 3 percent toward their pension costs.
Officials said the ruling would affect 3,500 cops and all future hires in the NYPD and FDNY, which was excluded in this round only because a federal judge has blocked the hiring of new firefighters for the last three years in a dispute over minority hiring.
The added cost to taxpayers was put at $7 million the first year, increasing by another $7 million each succeeding year.
City officials said they’d appeal. “We strongly disagree with Justice Edmead’s decision, which would provide a pension to Tier 3 members, like newly hired police officers, at no cost whatsoever to the employee,” said city lawyer Inga Van Eysden.
Mayor Bloomberg, who is counting on Gov. Cuomo to enact sweeping pension reforms for all new city employees this year, scored a rare pension win in Albany in 2009 when then-Gov. David Paterson vetoed an extension of Tier 2 pension benefits for cops and firefighters, thrusting them into a new Tier 3.
Union leaders hollered and screamed, but Paterson’s veto was upheld in the Legislature.
As a result, cops hired after the cutoff date received a number of reduced benefits. They have to work 22 years, instead of 20, before being eligible for retirement. At age 62, their pensions will be cut by the amount of their Social Security checks. And they’d have to kick in 3 percent every paycheck for 25 years toward their pensions.
The city’s coup received remarkably little attention from the general public — but the unions were inflamed, and several, including the Patrolmen’s Benevolent Association, the police Captains Endowment Association and the Uniformed Fire Officers Association, filed lawsuits.
Under an agreement reached in 2000 that allowed the Giuliani administration to raid pension funds, the city agreed to cover much of the pension contributions of cops and firefighters in order to increase their take-home pay, what came to be known as ITHP.
“The ITHP was never a gift from the city to the members,” said Al Hagan, president of the UFOA. “It was negotiated in lieu of a salary increase and to allow the city to restart the pension.”
Judge Edmead ruled that the city has a continuing obligation to pay those pension contributions because of a statute dating back to 1976 that’s independent of the tier system.
$o much for that idea
A state Supreme Court judge ruled that the city cannot ask cops hired after July 2009 to contribute 3% of their annual salaries to their pensions.
* 3,500 NYPD cops affected, plus future hires in NYPD and FDNY
They just don’t get it or they just don’t care that public employee pension costs are crippling the city and the state.
Members of the Legislature on Wednesday held a first hearing on Gov. Cuomo’s critically needed reform plan — and promptly subjected it to withering dissection.
The questioning of Budget Director Robert Megna was so close that spectators could be excused for thinking union leaders had commandeered the legislative seats.
Literally, that is, not figuratively, which is clearly the case.
Democratic Staten Island Sen. Diane Savino, a former labor leader; Democratic Brooklyn Assemblyman Peter Abbate, who carries union water, and others took umbrage that future government workers wouldn’t enjoy the rich retirement benefits that the legislators themselvesget.
The lawmakers focused entirely on how life would change, as it must, for employees who have yet to be hired, rather than on the devastating impact on taxpayers.
The retirement tab for New York City alone has quintupled since Mayor Bloomberg took office — to $8 billion from $1.5 billion. Payments to city pension funds now chew up 12% of the budget, and they’re still climbing.
Getting a handle on this ballooning expense is a priority for Cuomo and Bloomberg. They rightly believe those billions should be spent on services — like education, police and fire protection — rather than retirement payouts that are way out of line compared with anything in the private sector.
While sparing the benefits of current workers and retirees, as required by law, Cuomo would raise the retirement age to 65 from 62 and require workers to stay on the payroll for 12 years instead of 10 to be eligible for benefits. Overtime would no longer count in calculating pensions. And employees would contribute more than the current 3% of salary, depending on their pay level and economic conditions.
Best of all, newcomers would have a choice of entering a 401(k)-style investment plan, with the state chipping in as much as 7% of salary. It’s an option that has been a big hit with SUNY faculty — and would be much more predictable and affordable for taxpayers.
But choice, affordability and saving money don’t sit well with the public employee unions. And the legislators’ queries toed the labor line.
They questioned whether differences in benefits between older and younger workers would create friction in the ranks.
They questioned whether new hires would be sophisticated enough to choose the best plan and manage their money responsibly.
They questioned whether retirees would end up in poverty.
They questioned whether the small upfront savings are worth the trouble, even though they will mushroom to more than $100 billion over the next 30 years.
Worst of all, they questioned whether they could possibly agree on pension reform before the April 1 budget deadline. “This is a very complicated issue,” Savino opined.
Funny, but she and her colleagues never ran short of time when it came to passing pension sweeteners year after year.
The hearing made clear that Cuomo has a tough fight on his hands in making pension reform happen this year. It’s a battle he must win — making full use of the sweeping budgetary powers afforded him by the state Constitution.
By E.J. McMahon | Posted: Friday, January 20, 2012 3:15 am
Just over two years ago, New York State enacted what then-Gov. David A. Paterson presented to the world as "landmark pension reform."
In his 2012-13 budget proposal this week, Gov. Andrew M. Cuomo raised the subject of pension reform all over again. Why? Because Paterson's bill was a "landmark" only in the annals of Albany political hyperbole.
Paterson's December 2009 pension measure reversed benefit sweeteners enacted by the State Legislature over the previous 25 years, while trimming police and fire pensions a bit more. But it ignored the core problem in the public pension system: open-ended financial risk for taxpayers.
Public-sector pensions are financed out of big pools of stock and bond investments -- like the trust fund that feeds the New York State and Local Retirement System. When asset values soared in the bull market of the 1990s, costs seemed to magically vanish and benefits were made more generous. But since 2000, it's been a far different story.
From the end of fiscal 2000 through fiscal 2011, a period in which the state pension fund assumed it would earn annual returns averaging close to 8 percent, actual returns gyrated from a 29 percent gain in 2004 to a 26 percent loss in 2009, and averaged less than 5 percent. Meanwhile, annual benefit payments doubled, from $4.2 billion to $8.4 billion, as the number of retirees and benefit levels both rose.
The same trend was experienced by New York City's five municipal pension funds and by the New York State Teachers' Retirement System. All are deep in the hole, and taxpayers are being charged billions more a year to return these pension systems to what government accounting standards call "fully funded" -- which would still be insufficient by private pension standards.
Public employee pensions in New York are generous by both private and public standards, on average replacing 77 percent of pre-retirement income without even counting Social Security. But the purpose of reform shouldn't be simply to offer less-expensive benefits in the future. The public needs a system that is financially more transparent and sustainable. Ideally, New York would break entirely with the defined-benefit approach and move all government workers to a 401(k)-style defined-contribution system -- now the prevalent retirement model in the private sector. At the very least, real pension reform would require employees to share in the risk.
Since the state constitution effectively locks in promised benefits for active workers, only future employees would be affected by any change. That's why New York pension plans are arrayed in "tiers" based on employee hiring dates. The 2009 changes were Tier 5.
Cuomo's first stab at a Tier 6, introduced last June, was a same-but-less approach -- more of a Tier 5-A -- reducing benefits, raising the retirement age and requiring higher employee contributions. Unlike Paterson's plan, it applied to New York City as well. But, like Paterson's proposal, it left the problematic pension financing structure intact.
The Tier 6 proposal included in Cuomo's latest budget is a big improvement. It would give state and local employees the option of joining a defined-contribution plan modeled on the popular Teachers Insurance and Annuity Association accounts offered by the State University of New York since the mid-1960s. For those choosing a traditional pension, it would add a "risk-reward" provision. When the pension fund needs more money, employees as well as taxpayers would have to contribute more.
The proposal is certainly far from perfect. Better models exist elsewhere -- including California, where Gov. Jerry Brown has proposed a mandatory "hybrid" of defined-benefit and defined-contribution accounts, which in turn is similar to a new Rhode Island law. But Cuomo deserves credit for finally putting real reform on the table. Legislators should see this as an opening to do more -- not to pass yet another underwhelming "landmark."
E.J. McMahon is senior fellow at the Manhattan Institute's Empire Center for New York State Policy.
New York police, fire pension trustees propose rival management plan
By Bloomberg
Published: January 20, 2012
New York City pension trustees representing senior police and fire officers proposed an alternative that would preserve their power over how the city invests retirement funds, according to a copy of the plan.
Mayor Michael Bloomberg and city Comptroller John Liu advocate an independent investment board composed of representatives of the mayor, comptroller and unions that would set pension strategy and hire managers. They said the combined board and a chief investment officer, a new post, would lower costs and depoliticize management of the five funds in the $115.2 billion New York City Retirement Systems.
Trustees representing the officers don’t want to delegate investment authority to a new board. Instead, they’re proposing that the funds’ more than 50 trustees continue to set strategy at monthly meeting and hire investment managers.
Unlike the plan backed by Messrs. Bloomberg and Liu, the counterproposal would leave the city comptroller in charge of the CIO.
“There shall be no reduction, elimination or minimization of the authority and fiduciary responsibility of current trustees of the five pension funds in the New York City Pension System,” according to the proposal from the New York City Police-Fire Superior Officers Alliance.
Bloomberg News obtained the document from a person involved in the discussions who declined to be identified because the meeting was private.
The superior officers also oppose the city’s plan to spin off the asset management bureau, now under the comptroller, into a separate investment management group under the independent board.
New York’s pension funds for teachers, police officers, firefighters, civil employees and school administrators each have their own boards, consultants and investment policies. Mr. Liu serves as investment adviser to the funds. Representatives of the comptroller and mayor also are trustees.
Marc LaVorgna, a spokesman for Mr. Bloomberg, said he hadn’t seen the proposal and declined to comment further. Michael Loughran, a spokesman for Mr. Liu, also said he hadn’t seen it. “The current investment reform proposal will depoliticize the investment process, benefit the city’s pensioners and taxpayers and modernize a system that has operated the same way for 70 years,” Mr. Loughran said in an e-mail.
Contribution cap among pension reform ideas Lawmakers prepare to negotiate after governor’s proposal of new retirement plan options
by Patricia Proven
January 19, 2012
In suggesting reforms to the New York State pension system, Assemblymen Dan Losquadro (R-Shoreham) and Steve Englebright (D-Setauket) are supporting legislation that would cap the yearly increase in public employers' pension contributions to 2 percent or the rate of inflation, whichever is lower.
The bill, A8505-2011 as sponsored by Assemblyman Tom Abinanti (D-Greenburgh), is designed to help local governments and school districts outside New York City stabilize their budgets by limiting the growth of pension expenditures, Losquadro said. Keeping pension costs in check would also better enable those taxing entities to stay within the state's mandated 2 percent tax levy cap, he added.
Pension costs are one of the biggest categories of spending — along with salaries and health benefits — for municipalities and school districts. Only a small portion of pension costs is eligible for exemption from the tax cap, he said.
If the Legislature were to limit the amount that employers kick into the state retirement system, the state budget would fund the remainder of pension costs owed to the employee, according to the bill.
Putting the onus on the state forces lawmakers to make necessary reforms to the pension system, Losquadro claims.
Englebright said he wants to bring the Abinanti bill to the negotiating table along with other pension reform measures, including ones Gov. Andrew Cuomo introduced as part of his budget presentation Jan. 17. "I thought he made a very strong argument for pension reform," Englebright said Tuesday. "His idea is one that actually I've been talking about for a long time."
Guv's plan for reform
After outlining the problem of school districts and municipalities seeing a 185 percent increase in pension costs from 2009 projected through 2015, Cuomo presented to the Legislature his plan to create a new employment level, Tier 6, for state or local government employees who are hired after the end of this year.
A tier is based on a worker's date of membership in the system and determines among other things how much employees must contribute toward their pension benefits. People hired under tiers 1 through 4 in the state system contributed 3 percent of their salary for the first 10 years of employment only; Tier 5 requires 3.5 percent for the entire time of employment.
Under Tier 6, new hires could choose one of two retirement investment options — either a defined pension benefit, requiring employees throughout their tenure contribute between 4 to 6 percent of their salary, depending on economic conditions and the overall state pension fund's performance; or a defined contribution program that resembles a conservative 401(k)-style fund, according to the legislators.
For the second option, employees would have to contribute 4 percent of their salary to be matched by the employer and could contribute more as federal limits allow, with the employer matching up to an additional 3 percent, Losquadro said.
The governor projects his proposal would save 50 percent of current costs to local governments, Englebright said.
Tier 6 employees taking the 401(k)-style pension investment would be vested after one year of hire, according to a release from the governor's office, as opposed to those taking the defined benefit program, who would be vested after 12 years of hire, Losquadro said. "The defined contribution option really, I think, is the better option of the two," he said.
Englebright noted that SUNY professors have a similar option now; through the TIAA-CREF mutual fund program, they are advised to put 40 to 60 percent of their contribution into a guaranteed return on their investment and the rest into an investment that is market dependent and somewhat riskier, he said. Similarly, Tier 6 workers who choose the defined contribution plan would be "buffered from excessive loss" by the guaranteed return aspect of the investment, Englebright said.
"One of the other benefits of TIAA–CREF is, it's your money," he said and, referring to Cuomo, added, "I am so pleased to hear he's taking TIAA-CREF as the model. I only wish that we had done that at the national level a couple years ago with Social Security, because I think the model is not a raid on the youth."
The Democratic legislator stopped short of completely embracing Cuomo's plan pending his discovery of just how closely the new hires' defined contribution option would follow the TIAA-CREF model.
Cost roller coaster
While Cuomo's reforms propose to save state and local governments money and protect the public employee from market downturns, the Abinanti bill seeks to remove for employers "the peaks and valleys" of year-to-year contributions, making them more even, Englebright said.
Not only are pension costs one of the largest unfunded mandates that municipalities and school districts have to bear, but they are also unpredictable, said Losquadro. As a result, he added, "it becomes almost impossible to plan long term when every year you're waiting for the comptroller to tell you what your pension contribution rate will be."
Over recent years, reductions in the state's overall pension fund due to underperformance in the stock market has led the state comptroller, based on the actuary's recommendations, to call for double-digit spikes in the employers' contribution to make up the difference, according to information provided by Comptroller Tom DiNapoli's office.
In 2008-09 and 2009-10, employers were required to contribute an average 8.5 percent and 7.4 percent of payroll, respectively, to the New York State Employees' Retirement System. Those rates were announced by the comptroller's office in 2007 and 2008. However, in 2009, the office reported that the global recession's impact on the $116.5 billion state Common Retirement Fund would drive the average employer contribution rate up to 11.9 percent of payroll for 2010-11. The rate rose again to 16.3 percent for 2011-12 and is projected to go to 18.9 percent for 2012-13, the office stated. Average employer contributions to the Teachers' Retirement System, also the Police and Fire Retirement System, are even higher.
Englebright noted that any proposal for reform needs to be considered in the context of the big picture. "During the fat years leading up to 2008," he remarked ... "the bountiful earnings of the portfolio that the state holds caused the comptroller to waive completely for many years any pension contributions" by schools districts and local governments.
The comptroller's press secretary Eric Sumberg said that's not quite the case, though close to it. Although the amount that public employers kicked into the pension fund was never zero, prior to 2008-09 "the investment returns were so good," Sumberg said, that the state required a very low contribution rate of employers, at times below 4 percent of payroll.
But now that Cuomo's plan for Tier 6 put forth "a very good long-term structural solution" to pension fund sustainability, Losquadro and other lawmakers might have the language of their proposed 2 percent cap on employers' pension contribution changed to apply only to pension benefits in tiers 1 through 5.
Losquadro said he's very happy with the governor's ideas, noting that the new tier would also calculate benefits based only on an employee's base salary and would not factor in overtime, sick days or vacation days. "Pension padding has really gotten out of control," Losquadro said. "We don't want to discourage individuals from taking overtime but at the same time we can't have those as liabilities on the pension system."
He suggested that employee contributions from pay earned above base salaries go into something like a 401(k) instead.
Contribution cap among pension reform ideas Lawmakers prepare to negotiate after governor’s proposal of new retirement plan options
by Patricia Proven
January 19, 2012
In suggesting reforms to the New York State pension system, Assemblymen Dan Losquadro (R-Shoreham) and Steve Englebright (D-Setauket) are supporting legislation that would cap the yearly increase in public employers' pension contributions to 2 percent or the rate of inflation, whichever is lower.
The bill, A8505-2011 as sponsored by Assemblyman Tom Abinanti (D-Greenburgh), is designed to help local governments and school districts outside New York City stabilize their budgets by limiting the growth of pension expenditures, Losquadro said. Keeping pension costs in check would also better enable those taxing entities to stay within the state's mandated 2 percent tax levy cap, he added.
Pension costs are one of the biggest categories of spending — along with salaries and health benefits — for municipalities and school districts. Only a small portion of pension costs is eligible for exemption from the tax cap, he said.
If the Legislature were to limit the amount that employers kick into the state retirement system, the state budget would fund the remainder of pension costs owed to the employee, according to the bill.
Putting the onus on the state forces lawmakers to make necessary reforms to the pension system, Losquadro claims.
Englebright said he wants to bring the Abinanti bill to the negotiating table along with other pension reform measures, including ones Gov. Andrew Cuomo introduced as part of his budget presentation Jan. 17. "I thought he made a very strong argument for pension reform," Englebright said Tuesday. "His idea is one that actually I've been talking about for a long time."
Guv's plan for reform
After outlining the problem of school districts and municipalities seeing a 185 percent increase in pension costs from 2009 projected through 2015, Cuomo presented to the Legislature his plan to create a new employment level, Tier 6, for state or local government employees who are hired after the end of this year.
A tier is based on a worker's date of membership in the system and determines among other things how much employees must contribute toward their pension benefits. People hired under tiers 1 through 4 in the state system contributed 3 percent of their salary for the first 10 years of employment only; Tier 5 requires 3.5 percent for the entire time of employment.
Under Tier 6, new hires could choose one of two retirement investment options — either a defined pension benefit, requiring employees throughout their tenure contribute between 4 to 6 percent of their salary, depending on economic conditions and the overall state pension fund's performance; or a defined contribution program that resembles a conservative 401(k)-style fund, according to the legislators.
For the second option, employees would have to contribute 4 percent of their salary to be matched by the employer and could contribute more as federal limits allow, with the employer matching up to an additional 3 percent, Losquadro said.
The governor projects his proposal would save 50 percent of current costs to local governments, Englebright said.
Tier 6 employees taking the 401(k)-style pension investment would be vested after one year of hire, according to a release from the governor's office, as opposed to those taking the defined benefit program, who would be vested after 12 years of hire, Losquadro said. "The defined contribution option really, I think, is the better option of the two," he said.
Englebright noted that SUNY professors have a similar option now; through the TIAA-CREF mutual fund program, they are advised to put 40 to 60 percent of their contribution into a guaranteed return on their investment and the rest into an investment that is market dependent and somewhat riskier, he said. Similarly, Tier 6 workers who choose the defined contribution plan would be "buffered from excessive loss" by the guaranteed return aspect of the investment, Englebright said.
"One of the other benefits of TIAA–CREF is, it's your money," he said and, referring to Cuomo, added, "I am so pleased to hear he's taking TIAA-CREF as the model. I only wish that we had done that at the national level a couple years ago with Social Security, because I think the model is not a raid on the youth."
The Democratic legislator stopped short of completely embracing Cuomo's plan pending his discovery of just how closely the new hires' defined contribution option would follow the TIAA-CREF model.
Cost roller coaster
While Cuomo's reforms propose to save state and local governments money and protect the public employee from market downturns, the Abinanti bill seeks to remove for employers "the peaks and valleys" of year-to-year contributions, making them more even, Englebright said.
Not only are pension costs one of the largest unfunded mandates that municipalities and school districts have to bear, but they are also unpredictable, said Losquadro. As a result, he added, "it becomes almost impossible to plan long term when every year you're waiting for the comptroller to tell you what your pension contribution rate will be."
Over recent years, reductions in the state's overall pension fund due to underperformance in the stock market has led the state comptroller, based on the actuary's recommendations, to call for double-digit spikes in the employers' contribution to make up the difference, according to information provided by Comptroller Tom DiNapoli's office.
In 2008-09 and 2009-10, employers were required to contribute an average 8.5 percent and 7.4 percent of payroll, respectively, to the New York State Employees' Retirement System. Those rates were announced by the comptroller's office in 2007 and 2008. However, in 2009, the office reported that the global recession's impact on the $116.5 billion state Common Retirement Fund would drive the average employer contribution rate up to 11.9 percent of payroll for 2010-11. The rate rose again to 16.3 percent for 2011-12 and is projected to go to 18.9 percent for 2012-13, the office stated. Average employer contributions to the Teachers' Retirement System, also the Police and Fire Retirement System, are even higher.
Englebright noted that any proposal for reform needs to be considered in the context of the big picture. "During the fat years leading up to 2008," he remarked ... "the bountiful earnings of the portfolio that the state holds caused the comptroller to waive completely for many years any pension contributions" by schools districts and local governments.
The comptroller's press secretary Eric Sumberg said that's not quite the case, though close to it. Although the amount that public employers kicked into the pension fund was never zero, prior to 2008-09 "the investment returns were so good," Sumberg said, that the state required a very low contribution rate of employers, at times below 4 percent of payroll.
But now that Cuomo's plan for Tier 6 put forth "a very good long-term structural solution" to pension fund sustainability, Losquadro and other lawmakers might have the language of their proposed 2 percent cap on employers' pension contribution changed to apply only to pension benefits in tiers 1 through 5.
Losquadro said he's very happy with the governor's ideas, noting that the new tier would also calculate benefits based only on an employee's base salary and would not factor in overtime, sick days or vacation days. "Pension padding has really gotten out of control," Losquadro said. "We don't want to discourage individuals from taking overtime but at the same time we can't have those as liabilities on the pension system."
He suggested that employee contributions from pay earned above base salaries go into something like a 401(k) instead.
Contribution cap among pension reform ideas Lawmakers prepare to negotiate after governor’s proposal of new retirement plan options
by Patricia Proven
January 19, 2012
In suggesting reforms to the New York State pension system, Assemblymen Dan Losquadro (R-Shoreham) and Steve Englebright (D-Setauket) are supporting legislation that would cap the yearly increase in public employers' pension contributions to 2 percent or the rate of inflation, whichever is lower.
The bill, A8505-2011 as sponsored by Assemblyman Tom Abinanti (D-Greenburgh), is designed to help local governments and school districts outside New York City stabilize their budgets by limiting the growth of pension expenditures, Losquadro said. Keeping pension costs in check would also better enable those taxing entities to stay within the state's mandated 2 percent tax levy cap, he added.
Pension costs are one of the biggest categories of spending — along with salaries and health benefits — for municipalities and school districts. Only a small portion of pension costs is eligible for exemption from the tax cap, he said.
If the Legislature were to limit the amount that employers kick into the state retirement system, the state budget would fund the remainder of pension costs owed to the employee, according to the bill.
Putting the onus on the state forces lawmakers to make necessary reforms to the pension system, Losquadro claims.
Englebright said he wants to bring the Abinanti bill to the negotiating table along with other pension reform measures, including ones Gov. Andrew Cuomo introduced as part of his budget presentation Jan. 17. "I thought he made a very strong argument for pension reform," Englebright said Tuesday. "His idea is one that actually I've been talking about for a long time."
Guv's plan for reform
After outlining the problem of school districts and municipalities seeing a 185 percent increase in pension costs from 2009 projected through 2015, Cuomo presented to the Legislature his plan to create a new employment level, Tier 6, for state or local government employees who are hired after the end of this year.
A tier is based on a worker's date of membership in the system and determines among other things how much employees must contribute toward their pension benefits. People hired under tiers 1 through 4 in the state system contributed 3 percent of their salary for the first 10 years of employment only; Tier 5 requires 3.5 percent for the entire time of employment.
Under Tier 6, new hires could choose one of two retirement investment options — either a defined pension benefit, requiring employees throughout their tenure contribute between 4 to 6 percent of their salary, depending on economic conditions and the overall state pension fund's performance; or a defined contribution program that resembles a conservative 401(k)-style fund, according to the legislators.
For the second option, employees would have to contribute 4 percent of their salary to be matched by the employer and could contribute more as federal limits allow, with the employer matching up to an additional 3 percent, Losquadro said.
The governor projects his proposal would save 50 percent of current costs to local governments, Englebright said.
Tier 6 employees taking the 401(k)-style pension investment would be vested after one year of hire, according to a release from the governor's office, as opposed to those taking the defined benefit program, who would be vested after 12 years of hire, Losquadro said. "The defined contribution option really, I think, is the better option of the two," he said.
Englebright noted that SUNY professors have a similar option now; through the TIAA-CREF mutual fund program, they are advised to put 40 to 60 percent of their contribution into a guaranteed return on their investment and the rest into an investment that is market dependent and somewhat riskier, he said. Similarly, Tier 6 workers who choose the defined contribution plan would be "buffered from excessive loss" by the guaranteed return aspect of the investment, Englebright said.
"One of the other benefits of TIAA–CREF is, it's your money," he said and, referring to Cuomo, added, "I am so pleased to hear he's taking TIAA-CREF as the model. I only wish that we had done that at the national level a couple years ago with Social Security, because I think the model is not a raid on the youth."
The Democratic legislator stopped short of completely embracing Cuomo's plan pending his discovery of just how closely the new hires' defined contribution option would follow the TIAA-CREF model.
Cost roller coaster
While Cuomo's reforms propose to save state and local governments money and protect the public employee from market downturns, the Abinanti bill seeks to remove for employers "the peaks and valleys" of year-to-year contributions, making them more even, Englebright said.
Not only are pension costs one of the largest unfunded mandates that municipalities and school districts have to bear, but they are also unpredictable, said Losquadro. As a result, he added, "it becomes almost impossible to plan long term when every year you're waiting for the comptroller to tell you what your pension contribution rate will be."
Over recent years, reductions in the state's overall pension fund due to underperformance in the stock market has led the state comptroller, based on the actuary's recommendations, to call for double-digit spikes in the employers' contribution to make up the difference, according to information provided by Comptroller Tom DiNapoli's office.
In 2008-09 and 2009-10, employers were required to contribute an average 8.5 percent and 7.4 percent of payroll, respectively, to the New York State Employees' Retirement System. Those rates were announced by the comptroller's office in 2007 and 2008. However, in 2009, the office reported that the global recession's impact on the $116.5 billion state Common Retirement Fund would drive the average employer contribution rate up to 11.9 percent of payroll for 2010-11. The rate rose again to 16.3 percent for 2011-12 and is projected to go to 18.9 percent for 2012-13, the office stated. Average employer contributions to the Teachers' Retirement System, also the Police and Fire Retirement System, are even higher.
Englebright noted that any proposal for reform needs to be considered in the context of the big picture. "During the fat years leading up to 2008," he remarked ... "the bountiful earnings of the portfolio that the state holds caused the comptroller to waive completely for many years any pension contributions" by schools districts and local governments.
The comptroller's press secretary Eric Sumberg said that's not quite the case, though close to it. Although the amount that public employers kicked into the pension fund was never zero, prior to 2008-09 "the investment returns were so good," Sumberg said, that the state required a very low contribution rate of employers, at times below 4 percent of payroll.
But now that Cuomo's plan for Tier 6 put forth "a very good long-term structural solution" to pension fund sustainability, Losquadro and other lawmakers might have the language of their proposed 2 percent cap on employers' pension contribution changed to apply only to pension benefits in tiers 1 through 5.
Losquadro said he's very happy with the governor's ideas, noting that the new tier would also calculate benefits based only on an employee's base salary and would not factor in overtime, sick days or vacation days. "Pension padding has really gotten out of control," Losquadro said. "We don't want to discourage individuals from taking overtime but at the same time we can't have those as liabilities on the pension system."
He suggested that employee contributions from pay earned above base salaries go into something like a 401(k) instead.
NYC Actuary Recommends Lowered Return Rate for Pensions
Robert North, New York’s chief actuary, is recommending that the city’s schemes lower its assumed annual rate of return on assets to 7% from 8%.
(January 12, 2012) -- New York City has been told to reduce its assumed rate or return on its assets by a percentage point by its head actuary.
The city's actuary Robert North is recommending that the city's pension plans reduce its assumed annual rate of return on assets to 7% from 8%. The reduced expectations would open a funding gap of at least $2 billion next year, people familiar with the proposal told Bloomberg. According to the news service, North is revealing his plans to overseers of funds for police, firefighters, teachers, civilian employees and school administrators.
New York City's pension plans are not the only schemes to face resistance and concerns over its projected returns. New York State’s pension system lowered its rate from 8% to 7.5% in 2010; the Illinois State Employees’ Retirement System made a similar cut, from 8.5% to 7.75%. In September of last year, Joe Dear, the investment chief of the California Public Employees’ Retirement System (CalPERS), expressed that a 7.75% return may be tough to meet. In an interview with aiCIO featured in its Summer Issue, Dear commented on the fund's stellar returns, lowering expectations of future similarly stellar performance by saying: "Honestly, and not taking anything away from the team here, our 20.7% returns in fiscal 2011 were largely the result of market beta. Public equities are about half our $234 billion portfolio, and it is no secret that public equities significantly increased in value over the past year."
Summarizing his perspective on CalPERS' 2011 investment return and his future outlook, Dear told aiCIO: "Obviously, a 20% return undermines the statements of public pension fund critics—that we are unable to reach our target. I think that’s important—that there is still a lot of earning power in these assets—but let’s be clear: There won’t be a string of 20% years in a row."
In March 2010, CalPERS revealed plans to make a recommendation to its board on whether to lower its actuarial rate of return. Since 2003, CalPERS has assumed its fund, the value of its stocks, bonds and other holdings, would earn an average annual rate of 7.75%. But, following heavy losses during the financial crisis, the $200 billion fund began to assess whether to lower its long-standing rate. Lower investment return expectations would also decrease the likelihood that the fund would invest in more risky nontraditional investments, such as real-estate and private-equity, which contributed to the fund's losses. In the end, however, a CalPERS panel voted to keep the system's assumed rate of return at 7.75%.
Blackrock’s chief executive Laurence Fink told the board of CalPERS in July 2009 that the assumed rate of return on its investment was unrealistic. Fink said the fund should expect smaller gains, telling CalPERS board members that it would be lucky to get 5% or 6% return on its portfolio.
Meanwhile, in March 2011, two reports – one a primer for new pension trustees, the other detailing different return scenarios – issued by consultants regarding the State of Florida’s pension system highlighted what increasingly is becoming a national issue: the effect of discount rates on pension liabilities.
Milliman and Hewitt EnnisKnupp, reporting to the Governor and State Board of Administration (SBA), respectively, both raise the issue of discount rates’ effects on pension liabilities. The state currently uses a 7.75% figure; according to the Milliman report – entitled “Study Reflecting the Impact to the Florida Retirement System of Changing the Investment Return Assumption to One of the Following: 7.5%, 7.0%, 6.0%, 5.0%, 4.0% or 3%” – lowering this figure would increase the pension obligation of the State’s fund.
Gov. Cuomo has reportedly been considering the use of public-pension funds to finance the replacement of the Tappan Zee Bridge and other infrastructure investments in New York. This is a bad idea, harmful both to the state’s government employees and its taxpayers. Using public-pension monies in this fashion trades the immediate benefits of public construction for the long-term cost of underfunded public-retirement plans.
If investment in the new Tappan Zee Bridge yields risk-adjusted, market-rate returns, then private investors will step up to the plate and invest. Resorting to special financing arrangements with public pensions signals that a proposed investment doesn’t pass the test of the marketplace. Market-rate returns attract private capital; such investments don’t need to be subsidized.
Yes, there are projects that yield social benefits beyond their financial returns to investors. But in a democracy, voters (or their elected representatives) can and should be persuaded in open deliberations to finance such projects with tax dollars.
When governmental officials (however well-meaning) resort to special funding arrangements with public-pension monies, it indicates that the investment in question flunks both the discipline of the market and the legitimacy of voter approval.
Such projects also flout the venerable fiduciary standards for pension investments — namely, prudence and diversification.
An investment shunned by private investors is imprudent. When made by a state pension plan, such a below-market investment impairs the long-term interests of both the employees who depend on the plan for their retirement incomes and of the taxpayers who ultimately finance the plan.
A prudent pension investment must, at a minimum, yield a risk-adjusted, market-rate return. An investment rejected by private investors is at a below-market rate — and thus imprudent.
Moreover, an investment by New York pensions in New York infrastructure fails the test of diversification.
This test prevents a private-retirement plan from investing its resources in the stock of the employer sponsoring the plan — because the plan already depends on the economic well-being of the sponsoring employer, since the employer funds the plan. Placing the plan’s resources in the employer’s stock doubles the pension’s bet on the employer and its economic condition.
Similarly, if New York’s public pensions invest in New York projects, the pensions are doubling their bets on New York’s economy. These plans already count on New York’s economy for the tax revenues funding such plans. Concentrating their investments in the Empire State is the opposite of diversification; the financial fate of these plans is already tied to New York’s ability to fund them.
The budgetary pressures on Gov. Cuomo and other states’ chief executives today are severe. Those pressures make it tempting to turn to public pension funds to finance infrastructure when private investment can’t be obtained and voters can’t be convinced to pay taxes for such infrastructure.
It is precisely at such moments that the sage tests of prudence and diversification play their most important role — protecting the long-term interests of retirees and taxpayers by precluding pension trustees from making investments that flunk the criteria for sound fiduciary decision-making.
A new Tappan Zee Bridge is a great idea — but it should be pursued the right way, by formulating the bridge’s financing so as to attract private capital, voter approval or both. Special below-market deals for public pension plans are the wrong way to fund public infrastructure.
Edward A. Zelinsky is a law professor at the Cardozo School of Law, Yeshiva University, and author of “The Origins of the Ownership Society: How The Defined Contribution Paradigm Changed America.”
Gov. Cuomo recently said public-pension reform would be his top goal for 2012 — and then backtracked. But ignoring this crisis for another year simply isn’t an option; it won’t go away.
Cuomo should use the bully pulpit of his State of the State Address and his upcoming executive budget to help force a solution to New York’s public-employee-pension dilemma.
“I don’t think the unions are ever going to agree to pension reform,” Cuomo said in a year-end interview — adding: “It depends on whether or not the Legislature is going to do it.”
Yet the governor has the constitutional power to drive pension reform in the budget process (see Article VII of the 1929 amendments to the state Constitution) — and he knows it.
The question is: Does Cuomo have the will?
How bad is the problem? Consider: Ill-advised pension enhancements coupled with poor investment returns have raised public-employee pension costs by 50 percent — 50 percent! — in the last three years alone.
By 2014, county pensions in the aggregate will consume 25 percent of property-tax levies, up from 9 percent. That means other core local spending — senior-citizen services, infrastructure repairs, community college support — must be cut if we do nothing.
This pension squeeze isn’t unique to New York. But other states have already enacted reforms to deal with it.
New Jersey Gov. Chris Christie plugged a $52 billion hole in the state’s pension fund by requiring 750,000 public-sector workers to contribute more to their pension funds, saving $132 billion over 30 years.
Christie also raised the retirement age to 65 and increased eligibility requirements for early retirement, establishing a 3 percent-per-year penalty for early retirement.
Massachusetts also passed major pension-reform measures, including raising the retirement age for most officials and preventing elected and appointed officials from receiving pension benefits while holding office.
Will New York act soon as well?
There are solid ideas for reform on the table in this state.
In its comprehensive Mandate Relief report (available at nygop.org), the New York State Association of Counties called for reform of the state-pension system to mirror what is available in the private sector. The report suggests an amendment to the state Constitution to restore benefits to pre-2000 levels and the creation of a sixth pension tier that replaces defined benefits with defined contributions and a floor on employee contributions of at least 7.5 percent.
NYSAC also suggests other common-sense solutions, such as basing pensions on salaries without overtime, permitting employees to make contributions above the requirement and raising the minimum retirement age for new employees to mirror Social Security eligibility.
The governor’s proposed Tier VI pension level for new state employees would have been a step in this direction. The plan could have saved $120 billion over 30 years by raising the retirement age from 62 to 65 for new state workers and from 57 to 65 for new teachers, as well as requiring all new state employees to contribute 6 percent to their pension, up from the current 3 percent.
But Cuomo’s pension-reform plan wasn’t taken seriously in 2011, because it was tepidly introduced with just six days left in the legislative session — while Albany was fixated on the governor’s same-sex marriage legislation.
The timing of his 2011 roll-out and his year-end comments make one wonder whether Cuomo is truly serious about public-pension reform.
Now we’re at the cusp of a brand new year. The governor can send a clear message in his State of the State Address and through his executive budget that he means what he says. He can declare unequivocally that public-pension reform is a key and immediate priority.
Acting now is something he absolutely must do — if he has the long-term interests of the state in mind.
Ed Cox is chairman of the New York Republican State Committee.
ALBANY, N.Y. - New York's large and expensive public payrolls are starting to decline, pared down by more baby boomers hitting retirement age, special retirement incentives offered last year and renewed pressure to cut spending that are all starting to cut costs for taxpayers.
The New York State Common Retirement Fund for state and local governments reported processing a record 30,772 retirement applications in 2010, compared with about 20,000 annually for the past two decades. Fund officials attributed 12,000 to the retirement incentives.
Wildlife biologist Al Hicks retired last year after 34 years at the Department of Environmental Conservation, where he was studying widespread deaths of hibernating bats in New York. At 57, he believed there would still be opportunities to get work and make up the $15,000 difference between the pension and salary of $65,192. He used the incentive to get three years of retirement credit.
"It was pretty darn clear there wasn't going to be raises or anything for the next three or four years. I decided I wasn't going to work more than three or four years anyway," Hicks said.
"You see all across the country job losses in the public sector," said Eric Sumberg, spokesman for New York Comptroller Thomas DiNapoli, trustee of the pension fund. The 2010 retirement incentive provided an extra month's credit toward a pension benefit for each year of work up to three years. It was available to those already eligible to retire or workers who were 55 with at least 25 years of service.
Although many factors make the savings estimate fuzzy, the effective savings compared to a recent peak employment period in 2009 is about $1.25 billion. The Division of Budget, however, noted that variables including the type and cost of jobs vacated and if the worker is getting retirement benefits are hard to determine. It also depends on jobs staying empty. But the figure is substantial in the $132 billion budget.
"I think it's important to keep in context," said E.J. McMahon of the fiscally conservative Manhattan Institute. "Government employment is down, but it only began to decline when the recession was two-thirds of the way over; in fact it was increasing early in the recession."
New York's Labor Department reported 9,300 fewer government jobs statewide in September from the same month last year, including 2,300 fewer in the postal service, based on its survey of 18,000 employers that counts paychecks.
New York is not alone. As tax revenues dive, state and local governments have shed over a half million jobs since the recession began in December 2007. And, after adding jobs early in the downturn, the federal government is now cutting them as well. States cut 49,000 jobs over the past year and localities 210,000, according to an analysis of Labor Department statistics. There are 30,000 fewer federal workers now than a year ago.
The New York state pension system had 672,723 active members last year, about two-thirds of them employees of counties, cities, towns, villages, public authorities and school districts outside New York City. It had 385,031 retired workers with ranks of retirees growing faster than active members. So far in 2011 it has received another 13,000 retirement applications.
The New York State Teachers Retirement System is separate from the state retirement system and covers upstate public school teachers. The teachers retirement fund reported some 8,400 retirements in its 2010-2011 fiscal year, compared with 5,500 the year before. Its active enrollment declined from 285,700 to about 280,500 as of June 30, with another 4,500 applications filed so far. New York City's teachers and public workers have separate pension plans.
Retirement incentives accounted for about 1,300 of the upstate teachers leaving but the broader trend had been foreseen, said spokesman John Cardillo.
"The boomers are retiring," he said.
The post-World War II baby boom, from 1946 to 1964, spawned a generation that includes some 76 million U.S. residents who now range in age from 47 to 65. Many long-tenured state workers and teachers become eligible to retire at 55 with pensions, though some are clinging to jobs in a weak economy.
The state government's full-time work force, which totaled 195,792 in March 2010 for the executive departments, state and city universities, comptroller's and attorney general's offices, has declined by about 10,000 to 185,590 currently, state Budget Division spokesman Morris Peters said. In November 1990, the historic high was 230,593, he said.
"People talk about the ever-expanding government, not so much here," he said.
Gov. Andrew Cuomo's budget called for cutting operations spending at state agencies by 10 percent in 2011-2012. Peters said that remains in effect and the agencies have done it.
Hicks, the retired biologist, is still trying to help solve the white-nose syndrome that's killing bats. He started a consulting business, volunteers for the U.S. Fish and Wildlife Service and almost daily talks to his former DEC colleagues who now have the work with one fewer biologist.
"In terms of the future of the bat, it's a huge issue. That's why I'm still in it," Hicks said. "You can't spend a career working on it and walk out because your last day of employment is up."Associated Press writer Michael Gormley contributed to this report.
Westchester Medical Center, unions clash over projected layoffs
by: Theresa Juva-Brown
VALHALLA — How to deal with a possible $50 million budget gap next year has divided leaders and staff at Westchester Medical Center.
Hospital leaders announced Wednesday that as many as 620 full-time jobs could be eliminated by the end of the year if officials and unions can't reach cost-saving agreements.
"This is their hammer they said they were going to use," said Sam Caquias, a trauma center nurse and local bargaining unit president for the New York State Nurses Association. "It's not a hammer toward the nurses; it's a hammer on the patients."
Officials said they are determined to balance the budget, while unions argued that more layoffs will harm patient care.
"If we pretend that times haven't changed and we don't make these cuts, at some point in time we will not have the money to pay our employees," said Mark Tulis, chairman of the hospital's board of directors, adding that union negotiations could limit the number of layoffs.
About 50 registered nurses gathered outside the medical center Thursday to denounce the proposed reductions, which include 250 from their ranks.
Medical center nurses are working under an expired contract and have been in talks with officials since last year.
The union has offered cost-saving plans, but leaders have rejected them, Caquias said.
The proposed layoffs also include 20 manager and assistant jobs and 350 Civil Service Employee Association positions. The CSEA includes employees such as physician assistants, maintenance workers and record clerks.
Officials have said the hospital is struggling with skyrocketing pension payments that will eventually reach $70 million and coping with $100 million in lost annual revenue.
Medicaid and Medicare reimbursements have dropped, and the medical center no longer receives financial support from the county.
Union officials have criticized hospital administrators' pay as part of the problem, but Tulis credited managers for turning the medical center around.
"When we reached a financial crisis in 2003, we brought the best in to run the hospital," he said. "We went from an $83 million deficit to today, where we've basically balanced our budget every year."
The real problem, he contended, is much bigger.
"If you throw all the administrator salaries together, it won't even come close to dealing with the increase (from $18 million to $70 million) for the New York state pension system," Tulis said.
New York City Retirement Systems returned 23.23% for the fiscal year ended June 30, the highest aggregate return for the city's five pension funds in 26 years.
The previous high was the 24.5% return for the year ended June 30, 1985.
The five pension funds had combined assets of $119.9 billion for the latest fiscal year, up 22.6% from 12 months earlier, confirmed Lawrence Schloss, deputy New York City comptroller for pensions and chief investment officer for the city's pension systems.
For the fiscal year ended June 30, 2010, the aggregate return was 14.21%, he said.
Mr. Schloss said the recent fiscal year's performance was driven by a heavy weighting in equities, taking profits in high-yield bond investments, cutting costs and terminating poorly performing managers.
For the year ended June 30, the system's aggregate returns by asset class were 32.9% in domestic equity, 31.22% in international equities, 25.68% in real estate, 18.9% in private equity and 7.5% in fixed income. Funds in the pension system made their first hedge fund investments in June totaling $117 million.
For the five years ended June 30, the pension system recorded an annualized return of 5.15%. For the 10 years ended June 30, the annualized return was 5.6%.
The aggregate asset allocation as of June 30 was 42.1% in U.S. equities, 18.3% in international equities, 25.4% in fixed income, 6.2% in private equity, 2.2% in private real estate, 0.1% in hedge funds and 5.7% in cash.
The pension funds in the New York City system will individually be reducing exposure to U.S. equities, increasing investments in hedge funds and increasing investments in private equity during the current fiscal year, with the amounts and allocations determined by the boards of each of the funds.
The five pension funds are the New York City Employees' Retirement System; the Teachers' Retirement System of the City of New York; the New York City Police Pension Fund; New York City Fire Department Pension Fund; and the New York City Board of Education Retirement System. Each fund is financially independent and has its own board of trustees.
New York City pension plan investment boards would consolidate under proposal
By Rob Kozlowski
Published: October 27, 2011:
Bloomberg
Mayor Michael R. Bloomberg
New York City Retirement Systems would have one board to oversee the investments of the $119.6 billion in assets in the city's five pension funds under an agreement in principal announced Thursday.
The proposal was announced by Mayor Michael R. Bloomberg, city employee union leaders and city Comptroller John C. Liu. Mr. Liu is investment adviser, custodian and trustee to the five city pension funds.
The proposal is in part the result of research that showed similar governance reforms brought about a 1% to 2% increase in revenue, Matthew Sweeney, spokesman for Mr. Liu, wrote in an e-mailed response to questions.
“(Mr. Liu) believes that the current system is unnecessarily complicated and that a streamlined structure would not only safeguard the $119 billion in investments but save money for taxpayers.”
Under the agreement, a single board comprising city and labor representatives would oversee the investments of the New York City Employees' Retirement System, Teachers' Retirement System, Police Pension Fund, Fire Department Pension Fund and Board of Education Retirement System. Each plan currently operates with its own independent investment board.
The proposal also would establish a Bureau of Asset Management, an independent investment entity outside of the city comptroller's office but still part of city government. A chief investment officer appointed to a fixed term would lead the Bureau of Asset Management and report to the new board.
The changes are intended to “insulate management of pension assets from any political office, further professionalize it and make it more consistent with industry best practices,” according to a city news release.
The proposal would also aim to increase investment returns and lower the city's pension costs, the release said.
The assets of the five pension funds would remain separate, and each plan would continue to administer benefits independently.
The proposal is on the city's website at www.comptroller.nyc.gov/pirnyc
Pension applications hit a record in 2010, according to state Comptroller Thomas DiNapoli. About 12,000 public employees looked to retire early.
Bloomberg News
October 24, 2011 2:03 p.m.
Pension applications hit a record high in 2000, according to state Comptroller Thomas DiNapoli.
(Bloomberg) - New York state and more than 100 local governments face at least $600 million in extra pension costs after thousands of workers grabbed one-time incentives meant to shave former Gov. David Paterson's last budget.
About 12,000 public employees seeking to retire early fueled a pension-application record in 2010, according to a report from state Comptroller Thomas DiNapoli. The state processed 30,772 requests for retirement benefits that year, about 50% more than average, according to the report.
Lawmakers passed the plan in May 2010, as Mr. Paterson, a Democrat, estimated fiscal 2010 and 2011 budget savings of $320 million. Combined, the extra cost to state and local governments that offered the inducements will be almost $650 million, and more if municipalities spread out their payments to the New York State Common Retirement Fund, according to officials in Albany. About $50 million of the added expense will be in interest.
“Generally, any savings in the short-term are offset, or more than offset, by added pension costs” from incentive programs over the long term, said E.J. McMahon, a senior fellow at the Manhattan Institute for Policy Research. The nonprofit research organization focuses on “ideas that foster economic choice and individual responsibility,” according to its website.
The state will pay $385.5 million to the pension fund, including interest, since it opted to spread out its payments over five years, said a spokesman for the Budget Division. Local governments face at least $264.4 million in extra payments, said a spokesman for Mr. DiNapoli.
“I think at a time when you're trying to downsize your workforce, it is preferable to encourage people to retire rather than lay people off,” said Mr. DiNapoli earlier this month. “I do think that there's perhaps not as significant an upfront savings as people might assume.”
Mr. DiNapoli oversees the $146.9 billion pension, the nation's third-largest retirement plan for public workers, covering about 1.1 million state and local employees, retirees and beneficiaries. The incentive offers ended last year.
One of the two inducements added time credited for service for those 50 and older with at least 10 years of service in jobs that could be eliminated. The second let employees 55 or older with at least 25 years to retire early without penalty. Retirement at less than 30 years on the payroll can result in reduced benefits.
The state's annual operating costs will be $225 million lower as long as no early retirees are replaced, the Budget Divisions spokesman said. No estimate was available for local savings.
In 2002, when incentives also were offered to spur early exits, almost 13,000 state and local workers took advantage, later costing the state and some local governments a combined $502.7 million in extra payments into the pension system, according to figures from the comptroller's office.
Incentives were also offered each year from 1996 to 2000, prompting 24,419 workers to accept and adding $660.8 million to payments into the pension fund by the state and local governments, the figures show. The Budget Divisions spokesman said no estimate is available for savings produced by the earlier plans.
Extra pension costs aren't the only expense, either.
An incentive plan “never saves what they say it's going to save because people are rehired in the positions that people retire from,” said Assemblyman Peter Abbate Jr. “Often times, there's less people on the payroll, but then the jobs are outsourced,” he said.
Last Updated: 6:43 AM, September 19, 2011 - NY Post
Posted: 12:35 AM, September 19, 2011
Place your bets! Top Albany lawmakers are ready to approve Las Vegas-style casinos for New York state — including the city.
Both Assembly Speaker Sheldon Silver and Senate Majority Leader Dean Skelos have individually told The Post that they would back a constitutional amendment legalizing slots, table games and card games in New York — saying the casinos would provide a huge windfall for the state’s coffers.
With the Legislature’s most powerful men on board, the next Bellagio or Borgata could end up right here in New York City -- and maybe even Manhattan.
Silver (D-Manhattan) said he would be willing to have at least one casino in New York City -- at the Aqueduct Racetrack in Queens, where Malaysia-based Genting Resorts is building a massive “racino” that features slot machine-like video games.
“We have it all over, in New Jersey, Connecticut, Pennsylvania, in Native American casinos in New York, so we might as well take part in the revenues that come from casino gaming,’’ Silver said.
He added that casinos should be permitted everywhere except in “the middle of inner-city” neighborhoods that have heavy populations of poor people.
“I’m not averse to doing it, but I don’t want to do it all over the state. I think resort areas are appropriate, and it certainly shouldn’t be in the middle of the inner cities,” the speaker said.
“People shouldn’t be able to lose a month’s salary on their lunch hour,’’ added Silver, who has long backed a casino in the Catskills.
As for Skelos (R-LI), he “is supportive of a constitutional amendment that will let the people of New York decide,’’ said spokeswoman Kelly Cummings.
The green light from both leaders means an amendment is certain to pass the Legislature next year and then again, as required by law, in 2013, when it would go to the voters for a final OK.
Their support comes just a month after Gov. Cuomo said New Yorkers should “come to grips” with the economic benefits of casinos.
Officials have said casinos would create thousands of jobs and hundreds of millions of dollars in new tax revenues.
A Cuomo administration source called Silver and Skelos’ commitment “important’’ and “significant.”
Currently, the only gaming allowed in New York is computerized “lottery” games at racetracks or on American Indian land.
In 1997, the Democrat-controlled Assembly approved a state constitutional amendment legalizing casino gambling -- but it was killed in the GOP-controlled Senate.
At the time, the Republicans came under enormous pressure from New Jersey gambling interests, including Donald Trump, to reject the measure.
Skelos also said areas should be protected from being inundated by too many casinos.
“Limits should exist . . . to make sure there is no oversaturation of casinos in certain regions and to take into consideration community impact and support,’’ said Cummings.
In August, Cuomo raised the possibility of legalizing Las Vegas-style casinos in order to create jobs, to compete with an expanding number of gambling venues in neighboring states, and to win a share of the untaxed profits now being garnered by Indian-owned casinos upstate.
Cuomo also hired prominent gaming-industry expert Bennett Liebman to develop a plan for all of the state’s gambling outlets, including thoroughbred and harness race tracks, Off-Track Betting parlors and racinos.
Last week, the Massachusetts House of Representatives overwhelmingly passed a measure authorizing three full-fledged resort casinos, including one bordering New York
Though union leaders and their political supporters would seize on every upward market move to proclaim the end of the pension crisis, the current Wall Street upheaval should remind taxpayers that states and cities still need fundamental pension reform to lower the long-term risks for taxpayers and bring pension costs under control.
Because so many government pension systems are underfunded, their managers have been chasing high returns by betting heavily on volatile investments like stocks, producing wild swings in the value of the funds’ assets. Even with the run-up in the market earlier this year, New York’s pension assets were still some $9 billion lower than their peak in 2007 — before the financial crisis.
Those assets have now declined by perhaps another $10 billion to $15 billion in the current market debacle. Meanwhile, even as the fund struggles to get back to 2007 levels, annual benefits payments to retired workers have grown $2 billion in the last four years — more than $400 million a year.
New York is not alone. The giant California pension fund, CalPERS, in July reported its best returns in more than a decade. The chief investment officer declared its recent performance “powerfully affirms our [investment] strategy.” That strategy includes investing about two-thirds of its portfolio in risky stocks, according to The Sacramento Bee.
Union leaders in the Golden State argued that the improved returns make proposed changes in California’s pension system unnecessary. But CalPERS this month has already given back more than 40 percent of last year’s gains, according to The Sacramento Bee, a decline of assets estimated at $17 billion in virtually the blink of the eye.
But reformers now want to shift the pension risks away from taxpayers. They advocate 401(k)-style pensions for public workers, which would allow them to accumulate money in self-directed funds.
This approach is not always welcomed. The head of a union-backed group, Californians for Retirement Security, recently told the site CalWatchdog.com that, with the with the market’s decline, the 401(k) option being pushed in California, is “looking even worse than before.”
Translation: Public employees shouldn’t bear the risk of investment swings with the self-directed pension accounts now typical in the private sector. Instead, government employees want to retain their defined benefit plans, which guarantee them a certain pension payout — and force the taxpayer to pay for it if the market doesn’t.
That’s why it’s important not to buy into claims that just a few more good quarters in the stock market could bail out most state and local pension systems. In fact, even as pension funds were proclaiming that their assets were rising earlier this year, they were sending out bigger bills for pension contributions to cities and states, as they have been doing for years now.
New York City’s annual pension contributions have risen from $1.5 billion a decade ago to $8.4 billion. Anaheim, Calif., is already spending 22 percent of its $252 million budget on pensions. San Francisco’s comptroller has estimated that his city’s pension bill will rise from $357 million this year to $422 million next year. Detroit is spending 25 percent of its annual budget on pension contributions.
The bill for inflated, underfunded government pensions is here already. Just check your local school budget. Though the stock market will likely rebound sooner or later, the events of these past few weeks are a reminder that the taxpayer continues to bear the risk of unaffordable pension promises made to government workers in many states and cities.
E.J. McMahon and Steven Malanga are senior fellows at the Manhattan Institute.
Gov. Cuomo has decided to tackle yet another hot-button issue: the legalization of non-Indian casinos in New York state.
It’s an idea that could provide New York with a much-needed revenue boost -- possibly a small fortune.
But it also comes with a downside.
It’s certainly worth considering. And, fortunately, there’s plenty of time to debate the larger issue -- whether legalized gambling in New York, overall, should be dramatically expanded.
After all, the state Constitution prohibits all forms of commercial gambling save those that currently exist -- eight (soon to be nine) racetrack racinos and five Indian-run casinos.
Which means that the Constitution would have to be amended -- which itself is no mean feat.
First, the state attorney general has to prepare a written opinion confirming that any proposed amendment does not conflict with other articles in the Constitution.
Then the amendment must be approved by both houses of the Legislature in two consecutive sessions -- after which it must be passed by voters in a ballot referendum.
It’s a long and time-consuming process, in other words -- though the governor can also ask the voters to approve a constitutional convention.
Either way, expanded gambling won’t be coming to your neighborhood any time soon.
We’ve long been skeptical about the wisdom of government being so reliant on gambling revenue -- not to mention the wider economic impact on those who can least afford to rack up huge losses.
But Cuomo is entirely correct when he says that gambling “is happening” here and in neighboring states -- and that the key question is: “How should it be done?”
Fact is, as this page has chronicled over the years, gambling in New York -- including horse racing and the lottery (as well as the Indian casinos and video slot machines) -- is at the moment a patchwork that sure can stand some coherence.
The governor has appointed an ex-racing commissioner, Bennett Liebman, as special adviser to undertake a comprehensive review of all gambling in New York.
That’s a good first step -- because the problem is complex.
And the solution has to be all-encompassing, as well.
Any expansion of gambling cannot be done in a piecemeal, scattershot fashion.
There has to be a well-thought-out policy that addresses all of the present inequities, bureaucratic nightmares and likely human impact.
Our View: State pension system still needs changes
Posted: Monday, July 18, 2011 3:30 am: Auburn Pub.
Gov. Andrew Cuomo said last week that public pension reform will be a top priority for his administration in the next legislative session, and despite the misleading protests of union voices, the governor is wise to make this a focus.
Cuomo has proposed a pension reform plan that would establish a new tier in the state retirement system to limit benefits to future new government hires. The need for changes in the way the state’s retirement fund distributes payments to retirees is real. As people live longer, the fund itself will see increased liabilities, and there’s serious questions about whether the fund can sustain itself in the long-term.
The problem with achieving reform is that public unions and their advocates want to downplay the concerns about the fund. They do this by pointing to short-term figures.
Last week, the president of the AFL-CIO, Denis Hughes, tried to spin the news of the annual pension fund’s performance in the stock market as a reason changes to the system are not needed: “It’s interesting to note that on the same day the media is reporting that Governor Cuomo has made limiting retirement benefits for new state and city workers his top priority next year, it has also been announced that the Common Retirement Fund achieved a 14.6 percent rate of return for the 2010-2011 fiscal year. At the very least, this certainly calls into question the need for so-called ‘pension reform.’”
Nice try, Denis. But one year of solid returns from a now-jittery stock market does not fix the long-term pension issues this state is facing. Dismal years on Wall Street created some major pension contribution bills for local governments in recent years, and those bills have been picked up by the taxpayers.
And don’t forget, “so-called pension reform” is something the private sector has been experiencing for years with the economic problems this state and country have been facing. There’s no reason the public sector should be immune to making similar sacrifices.
AN ACT to amend the retirement and social security law, the education law and the administrative code of the city of New York, in relation to persons joining the New York state and local retirement system, the New York state teachers’ retirement system, the New York city employees’ retirement system, the New York city teachers’ retirement system, the New York city board of education retirement system, the New York city police pension fund, or the New York city fire pension fund on or after July 1, 2011
PURPOSE
This bill, if enacted, would reform all pension systems that provide benefits to New York State and local government employees.
It would similarly reform all pension systems that provide benefits to employees covered by New York City’s various pension systems.
Specifically, if enacted, it would establish pension benefits for newly hired State and local government employees, who first become members of the New York State and Local Employees' Retirement System ("ERS"), New York State and Local Police and Fire Retirement System ("PFRS"), the New York State Teachers' Retirement System ("TRS"), the New York City Employees’ Retirement System ("NYCERS"), the New York City Teachers’ Retirement System ("NYCTRS"), the New York City Board of Education Retirement System ("NYCBERS"), the New York City Police Pension Fund, the New York City Fire Pension Fund or other optional retirement systems established under the Education Law on or after July 1, 2011.
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SUMMARY OF PROVISIONS
The following bill sections, if enacted, would impact members who first become members of the ERS, PFRS, TRS, NYCERS, NYCTRS, NYCBERS, New York City Police Pension Fund, the New York City Fire Pension Fund or other optional retirement systems established under the Education Law, on or after July 1, 2011: 2
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Section 1 of the bill would amend Retirement and Social Security Law ("RSSL") § 41 so that such members of the ERS or TRS would not be granted any additional service credit for unused sick leave.
Section 2 of the bill would amend RSSL § 376 so that members of the PFRS with less than 20 years of service would need at least 12 years of service before becoming eligible for retirement benefits and need to reach the age of 65 before receiving the vested retirement allowance. Tier 6 PFRS members would retain the right to retire upon the completion of 20 or 25 years of service, regardless of age.
Section 2-a would amend RSSL § 440 to close Tier 2 to new investigator members of NYCERS in order to give them modified Tier 3 police/fire benefits.
Sections 3 and 3-a would amend RSSL § 501 in order to give new NYC uniformed correction, uniformed sanitation and investigator members modified Tier 3 police/fire benefits. Also, Section 3 of the bill would amend RSSL § 501 (24) so that "wages" upon which retirement benefits are based for such members of the ERS and NYCERS would not include overtime, wages in excess of the annual salary paid to the Governor pursuant to joint resolution of both houses of the Legislature ($179,000), and lump sum payments for deferred compensation, sick leave, accumulated vacation time or other credits for time not worked, as well as any termination pay and any additional compensation paid in anticipation of retirement., and to exclude overtime compensation and certain lump sum and terminal leave payments from pensionable earnings.
Section 4 of the bill would amend RSSL § 502 so that such members of the ERS would need at least 12 years of creditable service before being eligible for retirement benefits.
Section 5 of the bill would amend RSSL § 503 so that such members of the ERS would need to reach the age of 65 before becoming eligible to receive the normal service retirement benefit.
Section 6 of the bill would amend RSSL § 504 so that such members of the ERS, at normal retirement age would receive a pension equal to 1/60 of the final average salary times years of credited service not in excess of 30 years. In addition, the ability to retire prior to reaching the normal retirement age would be eliminated.
Sections 5 and 6 amend RSSL §§ 503 and 504 to give new NYCERS uniformed correction members modified tier 3 police/fire service retirement benefits rather than current tier 3 uniformed correction service retirement benefits.
Sections 6-a, 6-b and 6-c would amend RSSL §§ 504-a, 504-b and 504-d, respectively, so that new NYC uniformed correction members will get the benefits of a modified Tier 3 police/fire plan rather than the current uniformed correction plans. 3
Section 6-d would amend RSSL § 505 to give new NYC uniformed correction, uniformed sanitation and investigator members modified police/fire service retirement benefits.
Section 6-e would amend RSSL § 507 to give new NYC uniformed correction, uniformed sanitation and investigator members modified police/fire accident disability retirement benefits.
Sections 6-f and 6-g would amend RSSL § 507-a and section 6-h would amend RSSL § 507-c to give new NYC uniformed correction members Tier 3 police/fire disability benefits.
Section 6-i would amend RSSL § 508 to give new NYC uniformed correction, uniformed sanitation and investigator members police/fire ordinary death benefits.
Section 6-j would amend RSSL § 510 to give new NYC uniformed correction, uniformed sanitation and investigator members who receive a service retirement benefit after 25 years full escalation of benefits currently applicable to tier 3 police/fire members.
Section 6-k would amend RSSL § 511 to give new NYC uniformed correction members the same coordination with Social Security benefits that is applicable to current tier 3 police/fire members, and which also will be applicable to new NYC uniformed sanitation and investigator members.
Section 7 of the bill would amend RSSL § 512 so that affected members would have their "final average salary" based on the average wages earned by such member during five consecutive years which provide the highest average wage. If wages in any one such year exceed the average of the previous four years by more than 8%, the amount in excess of 8% would be excluded from the computation of the final average salary.
Section 7-a would amend RSSL § 513 to make new NYC tier 3 uniformed correction members ineligible to obtain service credit for child care leave in order to equate their benefits with tier 3 police/fire benefits.
Section 7-b would amend RSSL § 513 to prohibit new police/fire, uniformed correction, uniformed sanitation and investigator members from receiving service credit for undocumented sick leave used as terminal leave.
Section 8 of the bill would amend RSSL § 516 so that affected employees who have 12 or more years of credited service will be entitled to a "deferred vested benefit" equal to 1/60 of their final average salary times years of credited service.
Section 9 of the bill would amend RSSL § 517 so that affected employees would be required to contribute 6% of annual wages as their contribution. 4
Section 9-a would amend RSSL § 517-c to prohibit new NYC uniformed correction, uniformed sanitation and investigator members from borrowing on their member contributions in order to equate their benefits with Tier 3 police/fire benefits.
Section 9-b would amend RSSL § 600 to put new NYC uniformed sanitation members in tier 3 in order to give them modified Tier 3 police/fire benefits.
Section 10 of the bill would amend RSSL § 601 so that "wages" upon which retirement benefits are based for affected employees would not include overtime, wages in excess of the annual salary paid to the Governor, and lump sum payments for deferred compensation, sick leave, accumulated vacation time or other credits for time not worked, as well as any termination pay and any additional compensation paid in anticipation of retirement.
Section 10-a would amend RSSL § 601 to define members who join the NYCERS, NYCTRS or NYCBERS on or after July 1, 2011 as New York City revised plan members.
Section 11 of the bill would amend RSSL § 602 so that affected employees would need at least 12 years of creditable service before being eligible for retirement benefits.
Sections 12 of the bill would amend RSSL § 603 (a) so that affected employees would need to reach the age of 65 before becoming eligible to receive the normal service retirement benefit.
Section 13 of the bill would amend RSSL § 603 (i) by making conforming change to the law and limiting retirement benefits available under Tier 5 to employees who joined such systems before July 1, 2011.
Section 14 of the bill would amend RSSL § 603 (t) so that such members of the TRS would not be eligible for the early retirement benefit provided in Ch. 504, L. 2009 to members who retire at age 57 with at least 30 years of creditable service.
Section 15 of the bill would amend RSSL § 604 by adding a new subdivision b-1 so that affected employees would be entitled to a pension equal to 1/60 of their final average salary times years of credited service (not in excess of 30 year) plus an additional retirement allowance equal to 3/200 of the final average salary for each year of credited service in excess of 30 years.
Sections 15-a and 15-b would amend RSSL § 604-b (transit operating age 55/25-year plan); sections 15-d and 15-e would amend RSSL § 604-c, as added by Chapter 472 of the Laws of 1995 (TBTA 20-year/age 50 plan); sections 15-g and 15-h would amend RSSL § 604-e, as amended by Chapter 576 of the Laws of 2000 (dispatchers 25-year plan); sections 15-i and 15-j would amend RSSL § 604-e, as added by Chapter 577 of the Laws of 2000 (EMT 25-year plan); sections 15-k and 15-l would amend RSSL § 604-f, as added by Chapter 559 of the Laws of 2001 (deputy sheriff 25-year plan); sections 15-m and 15-n would amend RSSL § 604-f, as added by Chapter 582 of the Laws of 2001 (special officers 5
25-year plan); sections 15-o and 15-p would amend RSSL § 604-g (automotive members 25-year/age 50 plan); and sections 15-q and 15-r would amend RSSL § 604-h (police communications members 25-year plan) to provide 12-year vesting, payable at age 65, for new members of such special plans who do not reach the required service thresholds of their retirement plan. New members reaching 20 or 25 years of service retain the right to retire with an unreduced pension benefit, regardless of age. The benefits for all members in these plans would be calculated using the service fractions applicable to such plans under current law, and the 5-year final average salary provisions proposed in this bill. All participants in such plans would also contribute 6% of salary for all years of service, as proposed in this bill, plus the rates of additional member contributions established under current law.
Section 15-c would amend RSSL § 604-c, as added by Chapter 96 of the Laws of 1995, to make the age 55/25-year plan inapplicable to new members of NYCERS and BERS; section 15-f would amend RSSL § 604-d to make the age 57/5-year plan inapplicable to new members of NYCERS and BERS; and section15-s would amend RSSL
Section 16 of the bill would amend RSSL § 608 so that affected employees would have their "final average salary" based on the average wages earned during the five consecutive years which provide the highest average wage. If wages in any one such year exceed the average of the previous 4 years by more than 8%, the amount in excess of 8% would be excluded from the computation of the final average salary.
Section 17 of the bill would amend RSSL § 609 so that affected employees could obtain credit for previous service in Tier VI by paying 6% of wages earned for service which predate entry into the system with interest at the rate of 5% per annum compounded annually.
Section 17-a would amend RSSL § 609 to prohibit new NYCERS non-uniformed members from receiving service credit for undocumented sick leave used as terminal leave.
Section 18 of the bill would amend RSSL § 612 so that affected employees who have 12 or more years of creditable service upon termination would be entitled to a "deferred vested benefit" after reaching the age of 65 pursuant to the benefit set forth in new RSSL § 604.
Section 19 of the bill would amend RSSL § 613 so that affected employees would be required to contribute 6% of annual wages as their contribution. It would also bar affect employees from withdrawing contributions if they have accrued at least 12 years of creditable service. 6
§ 604-i to make the age 55/27-year plan inapplicable to new members of NYCTRS and BERS. It is necessary to make new members ineligible for those special plans so that new non-uniformed members (other than those eligible for the other special plans discussed above) will have payability of service retirement and vested benefits at age 65. The only benefit of those special plans is to permit participants to retire early with an unreduced benefit.
Section 19-a would amend RSSL § 650 to make new Triborough Bridge and Tunnel Authority ("TBTA") members ineligible for early retirement with immediate payability. This amendment does not affect the right of new TBTA members to participate in the 20-year/age 50 TBTA plan discussed above.
Sections 19-b and 19-c would amend RSSL § 911 to eliminate the 10-year cutoff of basic member contributions for new non-uniformed members of NYCERS, NYCTRS and BERS, so that such new members will be required to contribute 6% of salary for all credited service.
Section 20 of the bill would amend RSSL § 1000 by adding a new subdivision (10) so that affected employees could obtain credit for military service by paying into such funds a sum equal to the product of the number of years of military service being claimed and 6% of such member’s contribution earned during the 12 months of credited service immediately preceding the date that the member applied for credit pursuant to this section.
Section 21 of the bill would amend RSSL § 1202 so that such members of the PFRS would need at least 12 years of creditable service before being eligible for retirement benefits. Further, the vested retirement allowance payable without modification could not be less than the actuarial equivalent of the total of the member’s contributions accumulated with interest at 5% per annum compounded annually.
Section 22 of the bill would amend RSSL § 1204 so that such members of the PFRS would be required to contribute 6% of annual wages as their contribution.
Section 23 of the bill would amend the RSSL by adding a new § 1207 so that such members of the PFRS would have their "final average salary" based on 1/5 of the highest total wages during any continuous period of employment for which the member was credited with 5 years of service credit. If wages in any one such year exceed the average of the previous 4 years by more than 8%, the amount in excess of 8% would be excluded from the computation of the final average salary. Moreover, any wages in excess of the annual salary paid to the Governor would be excluded from the computation of final average salary.
Section 24 of the bill would amend the RSSL by adding a new § 1208 so that "wages" upon which retirement benefits are based for such members of the PFRS would not include overtime, wages in excess of the annual salary paid to the Governor, and lump sum payments for deferred compensation, sick leave, accumulated vacation time or other credits for time not worked, as well as any termination pay and any additional compensation paid in anticipation of retirement.
Section 25 of the bill would amend the Education Law ("Ed. L.") § 182 so that for such members of the Education Department Optional Retirement Program ("ORP"), the State would make contributions at the rate of 4% of salary earned. For members of the ORP who so elected, the State would match the contribution of the member in an amount 7
not exceeding 3% of such member’s wages. In addition, employee contributions would no longer be required, although employees could elect to contribute up to the amounts authorized in federal law.
Section 26 of the bill would amend Ed. L. § 392 with respect to such employees who would be eligible for membership in the "optional retirement program" established pursuant to Article 8-B of the Ed. L. ("State University Optional Retirement Program"), and would require the State (with respect to employees of the state university system) and "electing employers" (with respect to employees of community colleges) to make contributions at the rate of 4% of salary earned. For members who so elected, the State would match the contribution of such member in an amount not exceeding 3% of such member’s wages. In addition, employee contributions would no longer be required, although employees could elect to contribute up to the amounts authorized in federal law.
Section 27 of the bill would amend Ed. L. § 6252 with respect to such employees who would be eligible for membership in the "optional retirement program" established pursuant to Article 125-A of the Ed. L. ("Board of Higher Education Optional Retirement Program"), and would require the employer with respect to employees of the colleges administered by the Board of Higher Education of the City of New York to make contributions at the rate of 4% of salary earned. For members who so elected, the employer would match the contribution of such member in an amount not exceeding 3% of such member’s wages. In addition, employee contributions would no longer be required, although employees could elect to contribute up to the amounts authorized in federal law.
Sections 27-a, 27-b and 27-c would amend New York City ("NYC") Administrative Code § 13-101 subdivisions 86, 87 and 89 to make conforming amendments to permit new uniformed sanitation members, who will be in Tier 3 under the bill, to pay their member contributions of a pre-tax basis in accordance with section 414 (h) of the Internal Revenue Code.
Section 27-d would amend NYC Administrative Code § 13-638.4 (e)(14) to provide a 5-year final average salary for new members of NYCERS and BERS.
Section 27-e would provide that the benefits conferred by sections 27-a, 27-b and 27-c of the bill, if enacted, are completely contingent upon the existence of benefits contained in the Internal Revenue Code.
Section 28 of the bill would provide that members of an employee organization that are eligible to join a special retirement plan pursuant to a collectively negotiated agreement with any State or local employer, would be able to continue to enroll in that special plan after the enactment of this bill, until the date on which such agreement terminates. Upon the expiration of such collective bargaining agreements, not including the period after the expiration of such agreement in which in its provisions continue to be in effect, pursuant to Civil Service Law 209-a (1)(e), the full provisions contained within this bill shall take effect. It would add a proviso to the language in that section of the bill so that it will not be construed to permit new NYCERS members to participate in the current 8
Tier 3 uniformed correction 20-year plans, the Tier 4 uniformed sanitation 20-year plan, the Tier 2 investigator member 20-year and 25-year plans, the NYCERS and BERS age 55/25-year and age 57/5-year plans or the TRS and BERS age 55/27-year plan. As discussed above, it is necessary to make new NYCERS members ineligible for such plans because (1) new uniformed correction members, uniformed sanitation members and investigator members will be getting Tier 3 police/fire benefits so that they will not receive greater benefits than new NYC police officers and firefighters, and (2) new NYCERS non-uniformed members are to receive payability of service retirement and vested benefits at age 65, and it would be inequitable to charge them additional member contributions under the special plans when they would not be allowed to retire early. As explained above, all other NYCERS special plans would remain open to new NYCERS members.
Section 29 of the bill provides that no enhancements, increases, or changes to the bill’s benefit structure shall be authorized.
Section 30 of the bill is the severability clause.
Section 31 of the bill provides for an effective date of July 1, 2011 and would add a proviso to the effective date provisions of that section to provide that the provisions of sections 27-a, 27-b and 27-c shall remain in force only so long as member contributions picked up under such sections are not includable as gross income under federal tax law provisions.
EXISTING LAW
Chapter 504 of the Laws of 2009 implemented the retirement benefits commonly known as Tier 5. This legislation would implement a different set of benefits for employees hired after July 1, 2011.
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JUSTIFICATION
Pension costs are one of the fastest growing expenses for both the State and local governments. The recent pension reforms creating Tier 5 for new employees were a step in the right direction, but did not go far enough. This legislation, if enacted, will substantially stabilize local property taxes and provide significant mandate relief to local governments, taxpayers and the State of New York.
In addition, under current law, in many areas it is routine for employees near retirement to dramatically increase retirement benefits by manipulating overtime schedules. The proposed Tier 6 would control such "padding" by excluding overtime, as well as special lump sum payments for sick leave and accumulated vacation credits for time not worked from the computation of final retirement benefits.
It would also increase the employee contributions to the pension system from 3% to 6% and requires that an employee be employed for 12 rather than 10 years before having a 9
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vested pension benefit. Moreover, full benefits would not become available until a member until retirement and attainment of age 65 rather than 62.
These reforms, if enacted, would keep pension costs affordable for the State and local governments, school districts, and other public employers by lessening this onerous burden, help drive down property taxes, reward hardworking government employees and maintain the fiscal integrity of localities and the State.
LEGISLATIVE HISTORY
This is a new bill.
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BUDGET IMPLICATIONS
According to the fiscal note provided by the Office of the State Comptroller, the enactment of this bill would result in a reduction in the long term expected annual employer contribution rate in the Employees’ Retirement System from 8.7% under Tier 5 to 3.6% under Tier 6. The expected annual employer contribution rate for Tier 4 employees is 11.0%.
The fiscal note also shows that this proposal will cause a reduction in the long term expected annual employer contribution rate for most employers in the Police and Fire Retirement System from 14.8%-15.1% under Tier 5 to approximately 10.0% under Tier 6. The expected annual employer contribution rate for employees hired prior to the enactment of Tier 5 is 18.5%-19.0% for most employers.
The fiscal note from the New York State Teachers’ Retirement System estimates the long-term expected cost of the Tier 6 benefit to be 3.4% of salary, compared to 8.8% under Tier 5. The expected annual employer contribution rate for Tier 4 employees is 11.8%.
If this bill were to be enacted, the State and other public employers outside of New York City would save more than $93 billion in pension costs over a 30 year period.
Furthermore, if enacted, New York City would save approximately $30 billion in pension costs over a 30 year period.
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EFFECTIVE DATE
This bill would take effect on July 1, 2011, and apply to individuals who become members of an impacted retirement system on or after that date.
New pension tier will increase retirement age and require greater employee contributions for new hires in order to reduce costs for taxpayers, state and local governments, and schools
Albany, NY (June 8, 2011)
Governor Andrew M. Cuomo today announced he has introduced pension reform legislation that would impose a new Tier VI for future employees and save taxpayers $93 billion over the next 30 years, a figure that does not include New York City. These reforms will reduce costs for local governments and schools and help get control of local property taxes for homeowners and businesses across the state. The bill also includes, at the request of Mayor Michael R. Bloomberg, a separate pension reform proposal for New York City and the uniformed services.
The new pension tier will increase the retirement age for new employees from 62 to 65, increase employee pension contributions and end so-called pension padding where employees accumulate substantial amounts of overtime in their final years of service to increase their pension.
"The numbers speak for themselves – the pension system as we know it is unsustainable," Governor Cuomo said. "This bill institutes common-sense reforms to bring government benefits more in line with the private sector while still serving our employees and protecting our retirees. Reducing the skyrocketing pension burden faced by local governments and schools will also help get control of local property taxes that are driving New Yorkers from their homes and from the state."
Since 2001, pension contributions by the state, local governments and schools increased from $368 million to $6.6 billion outside New York City.During the same period for New York City, pension costs increased from $1.1 billion to $8.4 billion.This level of growth raises property taxes and impacts government's ability to provide services.
Provisions in the legislation include:
Raising the retirement age from 62 to 65
Ending early retirement
Requiring employees to contribute six percent of their salary for the duration of their career
Providing a 1.67 percent annual pension multiplier
Vesting after 12 years instead of 10 years
Excluding overtime from final average salary
Using a five year final average salary calculation with an 8 percent anti-spiking cap
Excluding wages above the Governor's salary of $179,000 from the final average salary calculation
Eliminating lump sum payouts for unused vacation leave from the final average salary calculation
Prohibiting the use of unused sick leave for additional service credit at retirement
The reform of the state pension system would impact new hires by the state and local governments, including school districts. The City pension reform plan would cover new employees of New York City, including the uniformed services.
Mayor Michael Bloomberg said, "We have, for the last six months, been engaging with stakeholders in City and State government and our partners in municipal labor, on a vital question we've raised for years: how to protect both city services and the strength of our retirement funds over the long term.The Governor's bill will do just that -- by making sensible pension reforms that won't impact a single current employee or existing retiree, this legislation will create $30 billion in savings over the next 30 years for the City, which will ensure we can afford the services and workforce that City residents depend on, and provide a secure retirement for municipal employees long into the future."
Carol Kellermann, President of the Citizens Budget Commission, said, "Rapidly rising pension costs have squeezed the budgets of every government in New York State and contributed to New York's high tax burden. New York needs an affordable pension plan that reflects current economic times and can be sustained over the long term. Governor Cuomo's proposal for a new tier is fiscally responsible and would provide significant relief to taxpayers and local governments."
Stephen J. Acquario, Executive Director of the New York State Association of Counties, said, "Pension costs are projected to rise at unsustainable rates for public employers and their taxpayers. Governor Cuomo's Tier VI measure will provide much-needed long-term relief while still protecting the financial integrity of the retirement system.NYSAC supports the Governor's proposal which will modernize the State's pension system and provide efficiency and stability to ease the local burden of skyrocketing pension costs."
Peter Baynes, Executive Director of the New York Conference of Mayors, said, "Governor Cuomo's proposal to add a new Tier to the pension system is good news for local governments and their property taxpayers. The cost of the public pension system has grown out of control, and we need to take proactive steps to rein it in. This plan will ultimately save billions in taxpayer dollars while providing a stable, secure retirement system for public employees. We look forward to seeing the Governor's bill pass this session."
G. Jeffrey Haber, Executive Director of the Association of Towns of the State of New York, said, "Towns are always looking for responsible ways to minimize the real property tax burden for their residents.The current economic climate necessitates changes to the existing retirement formula. We applaud Governor's Cuomo's efforts to address this situation by the introduction of a Tier VI pension reform plan."
Timothy G. Kremer, Executive Director of the New York State School Boards Association, said, "School districts have been punished by escalating pension costs for the last several years. The current retirement systems are no longer sustainable.Saving $93 billion over time will provide welcome relief to school districts and taxpayers struggling to make ends meet."
Robert J. Reidy, Jr., Ph.D., Executive Director of the New York State Council of School Superintendents said, "Governor Cuomo's measure to rein in pension costs is commendable. In recent years, most school districts have had to freeze or cut all other spending to absorb steep pension cost increases.This plan will save billions in taxpayer dollars and provide much-needed relief to school districts all over New York state."
Jamestown Mayor Sam Teresi said, "I applaud Governor Cuomo's efforts to seek long overdue reform to the Public Employee's Pension System. His plan will ultimately bring much needed relief to local governments, school districts and the State government itself, whose budgets have all been ravaged by exploding pension costs during recent years. To those who claim that the benefits of the proposed Tier 6 will do nothing to help overburdened taxpayers now, I remind them that had foresight and leadership such as this been demonstrated 10-15 years ago, our punitive tax burden, problems and pain of today would have been significantly more manageable. Proverb teaches us that 'A journey of a thousand miles begins with a single step'. This is a significant leap and I look forward to working with the Governor and Legislature to follow this up with even more initiatives to restructure and retool the Governments of the Empire State."
New York State Comptroller Thomas P. DiNapoli proposed legislation today to greatly enhance his ability to catch those who abuse the pension system. The bill would grant the Comptroller access to New York State Department of Taxation and Finance's wage reporting system to identify New York State and Local Retirement System retirees working for local governments who exceed post-retirement earnings limitations. If a state or local government employee earns more than those limits, the Comptroller has the authority to suspend and recoup any excess pension payments.
"This legislation sends a message to anyone who tries to game the retirement system: if you don't play by the rules, we will find you and make you pay," said DiNapoli. "Government agencies should be enabled to work together to reduce waste, fraud and abuse. This legislation will do just that. We have half the puzzle and Tax and Finance has the other half. Together, we'll solve this problem and stop this kind of abuse."
Currently, the Retirement and Social Security Law (RSSL) places limits on the amount that may be earned by a retiree who returns to public employment without it affecting his or her pension payments. Most retirees are covered by Section 212 of the RSSL, which allows retirees under age 65 to earn up to $30,000 per calendar year without any pension penalty.
The Retirement System annually compares information for state employees with the State Comptroller's Office Division of Payroll to identify retirees who have obtained employment with the state. In addition, a law passed in 2008 requires school districts and BOCES to annually report all public retirees, including independent contractors and consultants, on their payrolls during the previous calendar year. If retirees are found to have exceeded the wage earnings limitations, the Retirement System suspends and recoups excess pension payments.
However, there currently isn't a mechanism for a similar comparison for retirees employed by the thousands of local public employers in the state. DiNapoli's legislation would amend Section 171-a of the Tax Law to grant the Comptroller's Office access to Tax and Finance's wage reporting system to match the Retirement System's records with information reported by local governments to Tax and Finance. This match would allow the Comptroller's Office to identify retirees improperly collecting a state pension and a local government salary.
In February, Comptroller DiNapoli and Oneida County District Attorney Scott McNamara announced that former Rome police officer Thomas C. Hubal had been convicted of third-degree larceny for earning more than his pension legal limit over a nine-year period. Hubal must repay more than $88,000 and serve six-months incarceration for defrauding the system. If this legislation had been in effect, Mr. Hubal would have been caught in the first year that his salary exceeded his pension limitation.
Under current law, it is the responsibility of retirees to report any post-retirement income to the Retirement System. Each year, all retirees are mailed a Report of Post-Retirement Employment Form, which must be filled out and returned to the State Comptroller's Office if the retiree received any earnings from public employment.
New York State Comptroller Thomas P. DiNapoli proposed legislation today to greatly enhance his ability to catch those who abuse the pension system. The bill would grant the Comptroller access to New York State Department of Taxation and Finance's wage reporting system to identify New York State and Local Retirement System retirees working for local governments who exceed post-retirement earnings limitations. If a state or local government employee earns more than those limits, the Comptroller has the authority to suspend and recoup any excess pension payments.
"This legislation sends a message to anyone who tries to game the retirement system: if you don't play by the rules, we will find you and make you pay," said DiNapoli. "Government agencies should be enabled to work together to reduce waste, fraud and abuse. This legislation will do just that. We have half the puzzle and Tax and Finance has the other half. Together, we'll solve this problem and stop this kind of abuse."
Currently, the Retirement and Social Security Law (RSSL) places limits on the amount that may be earned by a retiree who returns to public employment without it affecting his or her pension payments. Most retirees are covered by Section 212 of the RSSL, which allows retirees under age 65 to earn up to $30,000 per calendar year without any pension penalty.
The Retirement System annually compares information for state employees with the State Comptroller's Office Division of Payroll to identify retirees who have obtained employment with the state. In addition, a law passed in 2008 requires school districts and BOCES to annually report all public retirees, including independent contractors and consultants, on their payrolls during the previous calendar year. If retirees are found to have exceeded the wage earnings limitations, the Retirement System suspends and recoups excess pension payments.
However, there currently isn't a mechanism for a similar comparison for retirees employed by the thousands of local public employers in the state. DiNapoli's legislation would amend Section 171-a of the Tax Law to grant the Comptroller's Office access to Tax and Finance's wage reporting system to match the Retirement System's records with information reported by local governments to Tax and Finance. This match would allow the Comptroller's Office to identify retirees improperly collecting a state pension and a local government salary.
In February, Comptroller DiNapoli and Oneida County District Attorney Scott McNamara announced that former Rome police officer Thomas C. Hubal had been convicted of third-degree larceny for earning more than his pension legal limit over a nine-year period. Hubal must repay more than $88,000 and serve six-months incarceration for defrauding the system. If this legislation had been in effect, Mr. Hubal would have been caught in the first year that his salary exceeded his pension limitation.
Under current law, it is the responsibility of retirees to report any post-retirement income to the Retirement System. Each year, all retirees are mailed a Report of Post-Retirement Employment Form, which must be filled out and returned to the State Comptroller's Office if the retiree received any earnings from public employment.
Press Office (518) 474-4015
FOR RELEASE:
Immediately May 17, 2011
Press Office (518) 474-4015
FOR RELEASE:
Immediately May 17, 2011
Press Realse: May 17, 2011 NYS Comptrollers Office
New York State Comptroller Thomas P. DiNapoli proposed legislation today to greatly enhance his ability to catch those who abuse the pension system. The bill would grant the Comptroller access to New York State Department of Taxation and Finance's wage reporting system to identify New York State and Local Retirement System retirees working for local governments who exceed post-retirement earnings limitations. If a state or local government employee earns more than those limits, the Comptroller has the authority to suspend and recoup any excess pension payments.
"This legislation sends a message to anyone who tries to game the retirement system: if you don't play by the rules, we will find you and make you pay," said DiNapoli. "Government agencies should be enabled to work together to reduce waste, fraud and abuse. This legislation will do just that. We have half the puzzle and Tax and Finance has the other half. Together, we'll solve this problem and stop this kind of abuse."
Currently, the Retirement and Social Security Law (RSSL) places limits on the amount that may be earned by a retiree who returns to public employment without it affecting his or her pension payments. Most retirees are covered by Section 212 of the RSSL, which allows retirees under age 65 to earn up to $30,000 per calendar year without any pension penalty.
The Retirement System annually compares information for state employees with the State Comptroller's Office Division of Payroll to identify retirees who have obtained employment with the state. In addition, a law passed in 2008 requires school districts and BOCES to annually report all public retirees, including independent contractors and consultants, on their payrolls during the previous calendar year. If retirees are found to have exceeded the wage earnings limitations, the Retirement System suspends and recoups excess pension payments.
However, there currently isn't a mechanism for a similar comparison for retirees employed by the thousands of local public employers in the state. DiNapoli's legislation would amend Section 171-a of the Tax Law to grant the Comptroller's Office access to Tax and Finance's wage reporting system to match the Retirement System's records with information reported by local governments to Tax and Finance. This match would allow the Comptroller's Office to identify retirees improperly collecting a state pension and a local government salary.
In February, Comptroller DiNapoli and Oneida County District Attorney Scott McNamara announced that former Rome police officer Thomas C. Hubal had been convicted of third-degree larceny for earning more than his pension legal limit over a nine-year period. Hubal must repay more than $88,000 and serve six-months incarceration for defrauding the system. If this legislation had been in effect, Mr. Hubal would have been caught in the first year that his salary exceeded his pension limitation.
Under current law, it is the responsibility of retirees to report any post-retirement income to the Retirement System. Each year, all retirees are mailed a Report of Post-Retirement Employment Form, which must be filled out and returned to the State Comptroller's Office if the retiree received any earnings from public employment.
New York State Comptroller Thomas P. DiNapoli proposed legislation today to greatly enhance his ability to catch those who abuse the pension system. The bill would grant the Comptroller access to New York State Department of Taxation and Finance's wage reporting system to identify New York State and Local Retirement System retirees working for local governments who exceed post-retirement earnings limitations. If a state or local government employee earns more than those limits, the Comptroller has the authority to suspend and recoup any excess pension payments.
"This legislation sends a message to anyone who tries to game the retirement system: if you don't play by the rules, we will find you and make you pay," said DiNapoli. "Government agencies should be enabled to work together to reduce waste, fraud and abuse. This legislation will do just that. We have half the puzzle and Tax and Finance has the other half. Together, we'll solve this problem and stop this kind of abuse."
Currently, the Retirement and Social Security Law (RSSL) places limits on the amount that may be earned by a retiree who returns to public employment without it affecting his or her pension payments. Most retirees are covered by Section 212 of the RSSL, which allows retirees under age 65 to earn up to $30,000 per calendar year without any pension penalty.
The Retirement System annually compares information for state employees with the State Comptroller's Office Division of Payroll to identify retirees who have obtained employment with the state. In addition, a law passed in 2008 requires school districts and BOCES to annually report all public retirees, including independent contractors and consultants, on their payrolls during the previous calendar year. If retirees are found to have exceeded the wage earnings limitations, the Retirement System suspends and recoups excess pension payments.
However, there currently isn't a mechanism for a similar comparison for retirees employed by the thousands of local public employers in the state. DiNapoli's legislation would amend Section 171-a of the Tax Law to grant the Comptroller's Office access to Tax and Finance's wage reporting system to match the Retirement System's records with information reported by local governments to Tax and Finance. This match would allow the Comptroller's Office to identify retirees improperly collecting a state pension and a local government salary.
In February, Comptroller DiNapoli and Oneida County District Attorney Scott McNamara announced that former Rome police officer Thomas C. Hubal had been convicted of third-degree larceny for earning more than his pension legal limit over a nine-year period. Hubal must repay more than $88,000 and serve six-months incarceration for defrauding the system. If this legislation had been in effect, Mr. Hubal would have been caught in the first year that his salary exceeded his pension limitation.
Under current law, it is the responsibility of retirees to report any post-retirement income to the Retirement System. Each year, all retirees are mailed a Report of Post-Retirement Employment Form, which must be filled out and returned to the State Comptroller's Office if the retiree received any earnings from public employment.
DiNapoli Proposal Will Catch Pension Abusers
New York State Comptroller Thomas P. DiNapoli proposed legislation today to greatly enhance his ability to catch those who abuse the pension system. The bill would grant the Comptroller access to New York State Department of Taxation and Finance's wage reporting system to identify New York State and Local Retirement System retirees working for local governments who exceed post-retirement earnings limitations. If a state or local government employee earns more than those limits, the Comptroller has the authority to suspend and recoup any excess pension payments.
"This legislation sends a message to anyone who tries to game the retirement system: if you don't play by the rules, we will find you and make you pay," said DiNapoli. "Government agencies should be enabled to work together to reduce waste, fraud and abuse. This legislation will do just that. We have half the puzzle and Tax and Finance has the other half. Together, we'll solve this problem and stop this kind of abuse."
Currently, the Retirement and Social Security Law (RSSL) places limits on the amount that may be earned by a retiree who returns to public employment without it affecting his or her pension payments. Most retirees are covered by Section 212 of the RSSL, which allows retirees under age 65 to earn up to $30,000 per calendar year without any pension penalty.
The Retirement System annually compares information for state employees with the State Comptroller's Office Division of Payroll to identify retirees who have obtained employment with the state. In addition, a law passed in 2008 requires school districts and BOCES to annually report all public retirees, including independent contractors and consultants, on their payrolls during the previous calendar year. If retirees are found to have exceeded the wage earnings limitations, the Retirement System suspends and recoups excess pension payments.
However, there currently isn't a mechanism for a similar comparison for retirees employed by the thousands of local public employers in the state. DiNapoli's legislation would amend Section 171-a of the Tax Law to grant the Comptroller's Office access to Tax and Finance's wage reporting system to match the Retirement System's records with information reported by local governments to Tax and Finance. This match would allow the Comptroller's Office to identify retirees improperly collecting a state pension and a local government salary.
In February, Comptroller DiNapoli and Oneida County District Attorney Scott McNamara announced that former Rome police officer Thomas C. Hubal had been convicted of third-degree larceny for earning more than his pension legal limit over a nine-year period. Hubal must repay more than $88,000 and serve six-months incarceration for defrauding the system. If this legislation had been in effect, Mr. Hubal would have been caught in the first year that his salary exceeded his pension limitation.
Under current law, it is the responsibility of retirees to report any post-retirement income to the Retirement System. Each year, all retirees are mailed a Report of Post-Retirement Employment Form, which must be filled out and returned to the State Comptroller's Office if the retiree received any earnings from public employment.
New York State Comptroller Thomas P. DiNapoli proposed legislation today to greatly enhance his ability to catch those who abuse the pension system. The bill would grant the Comptroller access to New York State Department of Taxation and Finance's wage reporting system to identify New York State and Local Retirement System retirees working for local governments who exceed post-retirement earnings limitations. If a state or local government employee earns more than those limits, the Comptroller has the authority to suspend and recoup any excess pension payments.
"This legislation sends a message to anyone who tries to game the retirement system: if you don't play by the rules, we will find you and make you pay," said DiNapoli. "Government agencies should be enabled to work together to reduce waste, fraud and abuse. This legislation will do just that. We have half the puzzle and Tax and Finance has the other half. Together, we'll solve this problem and stop this kind of abuse."
Currently, the Retirement and Social Security Law (RSSL) places limits on the amount that may be earned by a retiree who returns to public employment without it affecting his or her pension payments. Most retirees are covered by Section 212 of the RSSL, which allows retirees under age 65 to earn up to $30,000 per calendar year without any pension penalty.
The Retirement System annually compares information for state employees with the State Comptroller's Office Division of Payroll to identify retirees who have obtained employment with the state. In addition, a law passed in 2008 requires school districts and BOCES to annually report all public retirees, including independent contractors and consultants, on their payrolls during the previous calendar year. If retirees are found to have exceeded the wage earnings limitations, the Retirement System suspends and recoups excess pension payments.
However, there currently isn't a mechanism for a similar comparison for retirees employed by the thousands of local public employers in the state. DiNapoli's legislation would amend Section 171-a of the Tax Law to grant the Comptroller's Office access to Tax and Finance's wage reporting system to match the Retirement System's records with information reported by local governments to Tax and Finance. This match would allow the Comptroller's Office to identify retirees improperly collecting a state pension and a local government salary.
In February, Comptroller DiNapoli and Oneida County District Attorney Scott McNamara announced that former Rome police officer Thomas C. Hubal had been convicted of third-degree larceny for earning more than his pension legal limit over a nine-year period. Hubal must repay more than $88,000 and serve six-months incarceration for defrauding the system. If this legislation had been in effect, Mr. Hubal would have been caught in the first year that his salary exceeded his pension limitation.
Under current law, it is the responsibility of retirees to report any post-retirement income to the Retirement System. Each year, all retirees are mailed a Report of Post-Retirement Employment Form, which must be filled out and returned to the State Comptroller's Office if the retiree received any earnings from public employment.
New York State Comptroller Thomas P. DiNapoli proposed legislation today to greatly enhance his ability to catch those who abuse the pension system. The bill would grant the Comptroller access to New York State Department of Taxation and Finance's wage reporting system to identify New York State and Local Retirement System retirees working for local governments who exceed post-retirement earnings limitations. If a state or local government employee earns more than those limits, the Comptroller has the authority to suspend and recoup any excess pension payments.
"This legislation sends a message to anyone who tries to game the retirement system: if you don't play by the rules, we will find you and make you pay," said DiNapoli. "Government agencies should be enabled to work together to reduce waste, fraud and abuse. This legislation will do just that. We have half the puzzle and Tax and Finance has the other half. Together, we'll solve this problem and stop this kind of abuse."
Currently, the Retirement and Social Security Law (RSSL) places limits on the amount that may be earned by a retiree who returns to public employment without it affecting his or her pension payments. Most retirees are covered by Section 212 of the RSSL, which allows retirees under age 65 to earn up to $30,000 per calendar year without any pension penalty.
The Retirement System annually compares information for state employees with the State Comptroller's Office Division of Payroll to identify retirees who have obtained employment with the state. In addition, a law passed in 2008 requires school districts and BOCES to annually report all public retirees, including independent contractors and consultants, on their payrolls during the previous calendar year. If retirees are found to have exceeded the wage earnings limitations, the Retirement System suspends and recoups excess pension payments.
However, there currently isn't a mechanism for a similar comparison for retirees employed by the thousands of local public employers in the state. DiNapoli's legislation would amend Section 171-a of the Tax Law to grant the Comptroller's Office access to Tax and Finance's wage reporting system to match the Retirement System's records with information reported by local governments to Tax and Finance. This match would allow the Comptroller's Office to identify retirees improperly collecting a state pension and a local government salary.
In February, Comptroller DiNapoli and Oneida County District Attorney Scott McNamara announced that former Rome police officer Thomas C. Hubal had been convicted of third-degree larceny for earning more than his pension legal limit over a nine-year period. Hubal must repay more than $88,000 and serve six-months incarceration for defrauding the system. If this legislation had been in effect, Mr. Hubal would have been caught in the first year that his salary exceeded his pension limitation.
Under current law, it is the responsibility of retirees to report any post-retirement income to the Retirement System. Each year, all retirees are mailed a Report of Post-Retirement Employment Form, which must be filled out and returned to the State Comptroller's Office if the retiree received any earnings from public employment.
I spoke yesterday to Assemblyman Peter Abbate, a Brooklyn Democrat who chairs the chamber’s Governmental Employees Committee, about Gov. Andrew Cuomo’s as-yet-unveiled plans for a new pension tier.
Abbate’s support would be a precursor to the passage of any bill.
He hasn’t seen or been briefed on the bill, he said (Assembly Speaker Sheldon Silver said much the same thing) but seemed skeptical about enacting a new pension tier within two years of the last one, and about Gov. Andrew Cuomo’s statements on pension padding as a justification. (Today, Comptroller Tom DiNapoli released his own plan to crack down on pension fraud.)
“That’s something they can handle internally,” Abbate said. “That’s not a pension issue, that’s a management issue.”
“It’s very dangerous to, every one or two years, do a new tier for budget purposes,” he continued, noting that other tiers have endured for decades. “We haven’t even implemented Tier V yet.”
Indeed, here’s a chart from the Office of the State Comptroller showing the number of retirees (This excludes pensioners from NYC) in each tier of the employee retirement system:
Much of the battling over spending and taxes in New York (and many other states) is really a fight over public-employee pensions. As you choose a side, it's worth realizing that many of our kids' teachers are millionaires -- thanks to the taxpayers.
How'd it happen? Recall a scene from a few years back over in New Jersey -- when Gov. Jon Corzine hollered to a crowd of public employees: "I'll fight to get you a good contract!"
Fight whom -- himself? He was the one who was supposed to represent the taxpayers.
But the diffuse interest of the general public has no seat at this table.
Politicians have every incentive to give the store away -- since unions then recycle their loot right back in the form of campaign contributions, TV ads, phone banks, canvassing labor and public rallies. This is completely legal, institutionalized corruption, and it's the kind of thing that in the private sector lands you in front of a prosecutor.
On some level, our elected officials had to know this would lead to disaster. But the odds of disaster on their watch always seemed small. Others could clean up the mess on some other, distant, day.
Welcome to that day, and it's not at all clear how to solve the problem. In New York, pension guarantees are protected by the state Constitution.
How big are these promises? In my town of Bedford, a retiring teacher today gets a pension of about 70 percent of base pay for life -- which typically works out to about $84,000 a year (not taxed by the state, incidentally). The retiree also gets family health benefits, worth another $16,000 or so a year.
Live for 25 years, and that's a total of $2.5 million.
And they've got an excellent chance of collecting for a quarter century -- because they get to retire with full benefits at age 57.
Discounted at 4 percent, that's a current value of $1.6 million. That means that, for you and me to get that hundred grand a year for 25 years, you'd need to have $1.6 million socked away in an IRA when you retired.
Wouldn't it be nice to have the taxpayers just hand it to you?
Yes, many of those nice teachers we've been trained for all these years to think of as chronically underpaid are millionaires.
But it's worse than that. I know, because I have read all 115 pages of my town's teachers contract. Some highlights:
* It's not difficult to make six figures, and that's for 181 days a year of contractual work -- versus around 240 days for the rest of us.
* And out of that 181 days, they get 15 sick days a year, plus four personal days and five bereavement days. Unused sick days go into your "sick day bank," for which you are paid at retirement.
* Raises every six months are automatic, regardless of performance.
* Extra pay for everything imaginable: Coaching sports, monitoring recess, helping with plays, etc. -- all the things private-school teachers are expected to do for nothing. My personal favorite: $1,339 for overseeing the juggling club.
It takes some effort to figure it all out -- for good reason. We're shocked enough to discover our kid's teacher is making six figures; imagine how we'd feel if we knew the real number. The unions aren't dumb.
You may think this is wonderful, but it's not sustainable. Pension obligations alone have states like ours at the threshold of insolvency -- with politicians like Chris Christie and Andrew Cuomo stuck with cleaning up the mess. Can they do it?
Well, the Berlin Wall once seemed like an immutable fact for those of us who grew up with it. Then, overnight, it was gone. That's the way of unsustainable paradigms: outwardly unchanged for years, but with pressure mounting out of sight. When that pressure can no longer be contained, its release is sudden and shocking.
The Berlin Wall moment for public unions is fast approaching.
Scott Johnston is a taxpayer who works in the financial industry.
Gov. Cuomo seems close to unveiling his promised pension-reform plan for New York's state and local governments. But will it be the kind of proposal New York needs -- one that permanently shifts retirement benefits for public employees to a new, more sustainable path? Based on what's been leaking from the governor's office this week, the answer is still unclear.
At a minimum, Cuomo reportedly is mulling a series of changes to the existing public-pension model for new hires. News accounts suggest his plan would raise the retirement age from 62 to 65, double employee contributions from 3 to 6 percent of salary, eliminate a benefit-bonus "multiplier" for longer-term employees and reduce the "pensionable" salary base by, among other things, excluding overtime pay.
In sum: Much like what we've got, but potentially (eventually) a lot cheaper. Maybe.
The problem is that this approach has been tried before -- and it hasn't worked. In the face of union lobbying, past attempts to rein in pension costs have been largely undone by subsequent "sweeteners." Fertilized by bull markets on Wall Street, public-pension benefits have a way of growing back like dandelions after a spring shower.
If Cuomo proposes a "reform" plan limited to changes in the existing defined-benefit pension system, he'll fail to address the fundamental problem.
Under current government accounting rules, public-sector pension funds can price constitutionally guaranteed (and thus risk-free) benefits based on hoped-for returns from risky investments. When those investments don't bring the (optimistically) expected return, or when asset values crash as they did in 2008-09, taxpayers are left to pick up the slack -- just when they can least afford it.
The one way to truly reform public pensions -- to protect taxpayers from open-ended financial risk, uncertainty and volatility -- is to shift to a defined-contribution (DC) approach, such as the 401(k) model that predominates in the private sector.
Taxpayers now shoulder all of the risk associated with public-pension benefits. A DC plan would shift the downside risk -- and upside investment gains -- to the workers themselves. At the same time, taxpayer support for retirement funds would be set at a steady, predictable level -- eliminating the threat of long-term liabilities.
Unlike traditional pensions, DC retirement accounts would be fully portable, moving with workers when they change jobs. While it takes at least a decade to vest in a public pension, the assets in a DC plan typically belong entirely to the employee after as little as a year.
And the federal tax code allows penalty-free withdrawals from DC accounts starting at age 59 1/2 -- an appealingly flexible alternative for workers who'd rather not be chained to a desk in a government office or classroom until they reach 65.
No DC plan could replicate the pension benefits of the current system on a guaranteed basis. But a well-designed, well-financed DC retirement account, supported by regular employer and employee contributions, can provide solid and steady benefits at a level that would still look gold-plated compared with the typical underfunded private-sector plan.
If Cuomo is still open to proposing a DC retirement plan for public employees -- and by some accounts, he is -- he need not look far for a model. Since the mid-1960s, New York has been sponsoring one of the nation's largest public-sector DC plans -- through the State University of New York.
Of roughly 30,000 SUNY employees who were eligible to join a retirement plan last year, more than 21,000 (including nearly three-quarters of unionized faculty members) had voluntarily opted for DC accounts such as those offered by TIAA-CREF, the huge teachers' and professors' pension fund.
Opening the SUNY optional plan to all state and local workers would be a step toward truly transformational pension reform. It also would set Cuomo apart from governors who have been content to tweak their states' DB plans while staying far away from the DC model.
So far, Cuomo is hiding the ball on pension reform. We'll soon learn how far he really intends to move it.
E.J. McMahon is a senior fellow at the Manhattan Institute's Empire Center for New York State Policy.
New York State Comptroller Thomas P. DiNapoli proposed legislation today to greatly enhance his ability to catch those who abuse the pension system. The bill would grant the Comptroller access to New York State Department of Taxation and Finance’s wage reporting system to identify New York State and Local Retirement System retirees working for local governments who exceed post-retirement earnings limitations. If a state or local government employee earns more than those limits, the Comptroller has the authority to suspend and recoup any excess pension payments.
“This legislation sends a message to anyone who tries to game the retirement system: if you don’t play by the rules, we will find you and make you pay,” said DiNapoli. “Government agencies should be enabled to work together to reduce waste, fraud and abuse. This legislation will do just that. We have half the puzzle and Tax and Finance has the other half. Together, we’ll solve this problem and stop this kind of abuse.”
Currently, the Retirement and Social Security Law (RSSL) places limits on the amount that may be earned by a retiree who returns to public employment without it affecting his or her pension payments. Most retirees are covered by Section 212 of the RSSL, which allows retirees under age 65 to earn up to $30,000 per calendar year without any pension penalty.
The Retirement System annually compares information for state employees with the State Comptroller’s Office Division of Payroll to identify retirees who have obtained employment with the state. In addition, a law passed in 2008 requires school districts and BOCES to annually report all public retirees, including independent contractors and consultants, on their payrolls during the previous calendar year. If retirees are found to have exceeded the wage earnings limitations, the Retirement System suspends and recoups excess pension payments.
However, there currently isn’t a mechanism for a similar comparison for retirees employed by the thousands of local public employers in the state. DiNapoli’s legislation would amend Section 171–a of the Tax Law to grant the Comptroller’s Office access to Tax and Finance’s wage reporting system to match the Retirement System’s records with information reported by local governments to Tax and Finance. This match would allow the Comptroller’s Office to identify retirees improperly collecting a state pension and a local government salary.
In February, Comptroller DiNapoli and Oneida County District Attorney Scott McNamara announced that former Rome police officer Thomas C. Hubal had been convicted of third-degree larceny for earning more than his pension legal limit over a nine-year period. Hubal must repay more than $88,000 and serve six-months incarceration for defrauding the system. If this legislation had been in effect, Mr. Hubal would have been caught in the first year that his salary exceeded his pension limitation.
Under current law, it is the responsibility of retirees to report any post-retirement income to the Retirement System. Each year, all retirees are mailed a Report of Post-Retirement Employment Form, which must be filled out and returned to the State Comptroller’s Office if the retiree received any earnings from public employment.
Cuomo to Propose Changes to New York State Pension System
By Esmé E. Deprez - May 16, 2011
Governor Andrew Cuomo said he will propose a bill within days that would lower the amount New York state and its local governments will pay in pension costs for future employees.
“We can’t afford the public pension system we have in this state, period,” Cuomo, a Democrat, said today in a briefing for reporters in Hempstead on Long Island.
The cost of pensions and health benefits for active and retired employees will grow to $6.2 billion in fiscal year 2014, from $1.3 billion in 1999, Cuomo said. New York’s $140.6 billion pension fund is the nation’s third largest.
Cuomo wants to raise the minimum retirement age to 65 from 62 for most workers, said a person familiar with the plan who wasn’t authorized to speak publicly before it is introduced. He also would require 12 years of work to qualify for a pension, up from 10, and double worker contributions, the person said.
The plan would save $93 billion over 30 years, the person said. That’s $30 billion more in savings than switching to a 401(k)-like plan would produce, the person said.
The governor is also seeking to mitigate so-called pension padding, in which employees artificially inflate their salaries with overtime pay in the final years of employment to receive bigger retirement checks.
‘Has to Stop’
“There has been an institutionalized fraud in the system that has to stop,” Cuomo said. “Most people are law-abiding citizens and they don’t game the system. It’s the people who do game the system that everyone else has to bear the cost.”
New York City Mayor Michael Bloomberg proposed a similar plan for future workers in February, in which they couldn’t count overtime in calculating retirement pay and wouldn’t receive full retirement benefits until 65.
Cuomo’s press briefing followed a speech at Hofstra University, the third stop on his “People First” tour to pressure lawmakers to approve a property-tax cap, tighter rules on ethics and a bill to allow same-sex marriage. Lawmakers must consider his agenda before their session ends June 20, which he called “D-Day.”
Campaign Promises
Cuomo, 53, the son of three-term Governor Mario Cuomo, took office in January after he was elected with 61 percent of the vote. Holding to his promises on the campaign trail, he reduced total outlays 2 percent in his $132.5 billion budget to help close a $10 billion deficit. The governor has also threatened to fire 9,800 state workers unless they agree to $450 million of savings, which is included in the budget.
“Governor Cuomo is scapegoating public employees and this is more evidence that he really doesn’t care about working people,” Stephen Madarasz, spokesman for the Civil Service Employees Association union, said by telephone. The 300,000- member association is the state’s largest public union.
The average CSEA retiree earns $14,000, he said. Cuomo’s proposal will “complicate” negotiations under way for the union’s 66,000 state executive branch employees, he said.
Public pension costs are “one of the main drivers” of the high property taxes New Yorkers pay, Cuomo said.
“We have to reduce pension costs,” he said. “Otherwise we’ll never stop the taxes from going up.”
Three of the five counties with the highest property taxes in the U.S. are in New York, according to the Tax Foundation in Washington. Topping the list is Westchester County, north of New York City, whose median property tax was $9,044 in 2009. The median for U.S. counties was $1,917.
New York’s mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.
To contact the reporter on this story: Esmé E. Deprez in Hempstead, New York at edeprez@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
ALBANY -- Gov. Cuomo vowed to defuse the state's pension time bomb yesterday as administration officials for the first time detailed sweeping plans to save billions on government retirements by cutting benefits and hiking employee contributions.
The new, less-generous pension tier for new workers would slash public-sector pension expenses by $93 billion, or nearly a third, over the next 30 years, sources said -- more than twice the savings promised by a similar overhaul two years ago under former Gov. David Paterson.
The plan would increase the minimum retirement age from 62 to 65 and require municipal, state and uniformed workers to contribute twice as much for their pensions. It would end early retirement, cap payouts for some high rollers and ban common tricks used to "spike" their pension calculation with lots of overtime just before they retire.
Cuomo refused to give details during a stop on Long Island yesterday but pledged to formally unveil his "Tier 6" pension plan "in a matter of days."
"We can't afford the public pension system that we have in this state," he said. "We have to reduce pension costs, otherwise we'll never stop the taxes from going up."
Mayors, school officials and other local leaders blame soaring pension costs -- brought on by demographic shifts, Legislature-approved "sweeteners" and investment losses by retirement funds -- for busting budgets across New York.
A recent analysis by the business-backed Manhattan Institute found that the state's pension funds are underfunded by $120 billion and that taxpayers will have to shell out $8.5 billion more annually by 2015 to keep them solvent.
Cuomo's bill would not apply to current state workers, whose pension benefits are constitutionally protected. It also would not affect city cops, firefighters and municipal workers, who have their own retirement system.
Mayor Bloomberg yesterday warned it "would be disastrous" to leave the city out of any pension overhaul and vowed to press the issue when he is in Albany today to lobby for legalized gay marriage.
"The governor has assured me that anything he does will include the city," the mayor told reporters. "He assured me a number of times."
A Cuomo spokesman said the governor supports a similar pension shakeup for the Big Apple and insisted the administration would work with Bloomberg to craft city-centric legislation.
Cuomo's statewide bill would reduce the state's expected $300 billion pension bill by $93 billion over the next three decades.
The plan would require workers to put in 12 years before they qualify for a pension -- up from 10 under current law -- and end early retirement.
It also would double retirement contributions by workers, who now contribute 3 percent of their paychecks to their pensions.
"Padding," which counts overtime, sick time and other time off while calculating pension payments, would be banned.
"The governor does not care about the impact of his policies on working people," said Civil Service Employees Association President Daniel Donohue, whose union represents some 300,000 public employees.
"The governor is engaging in political grandstanding to impress his millionaire friends at the expense of working people and the services they provide to the people of New York."
State and local governments spent $2.3 billion in 2010 -- compared with $284 million contributed by employees -- to support the pensions of more than 1 million current and retired state employees. The average non-uniform retiree collects $18,300 annually, while cops and firefighters draw an average $39,808.
Cuomo's effort comes two years after Paterson created "Tier 5" -- including increased contributions, greater early-retirement penalties and restrictions on overtime "spiking" to save $38 billion over 30 years.
Pension Pain: Public employee retirement costs are hard-wired, and hard to contain
Published: Sunday, April 24, 2011, 5:00 AM
By The Post-Standard Editorial Board The Post-Standard
Stephen D. Cannerelli/The Post-Standard ANDREW CUOMO visited Onondaga Community College while campaigning for governor last July to talk about pension-padding. It’s hard to change the system; benefits for current workers are protected by the state constitu´tion.
You may bristle over reports of public employees “padding” their pensions, or “double dippers” who return to the public payroll to collect both a salary and a pension. What’s really inflating taxpayers’ bills for public pensions, however, is not so much individual excesses and abuses as the way the system is set up — and how hard it will be to change.
Earlier this month, Syracuse Mayor Stephanie Miner forecast a 40 percent rise in yearly public employee pension costs. Tax-funded contributions to the teachers’ pension system could quadruple over the next five years, she said.
New York state now pays $7.66 billion to support 344,447 retirees, and Gov. Andrew Cuomo says future cost hikes are unsustainable.
Onondaga County’s pension spending also is trending sharply upward. Sheriff Kevin Walsh filed retirement papers days after his re-election last November so he could collect both his $110,000 salary and $82,500 pension. Syracuse’s deputy mayor and former fire chief, John Cowin, was receiving a $94,400 salary plus an $82,300 pension until he learned only elected officials could do so. (Cowin announced this month he is resigning and will refund his unauthorized pension payments.)
Many private-sector workers retire without any “defined benefit” pension, relying solely on Social Security and savings. Why should public employees be any different? The answer is tangled up in labor negotiations, state law, even the state constitution.
Consider overtime. Public employees nearing retirement have a huge incentive to work as much OT as possible. That’s because their pensions are based on their pay for the last one to three years of service. The more overtime they can rack up, the bigger their pension.
Miner, for one, questions whether overtime should be “pensionable.” The state Legislature recently restricted overtime and cut back benefits for future hires. It could pass a law barring overtime altogether, or prevent assignments based on seniority — but only for workers hired after a new law was passed: The state constitution protects rights for current public employees.
Keep in mind that “reforms” banning overtime interfere with local decision-making — local employers already have the power to adjust work schedules and limit overtime. Besides, pension-padding and double-dipping are not a big-money issue. According to the state Comptroller’s Office, the average yearly pension is just $18,300. Police and fire retirees receive an average of $39,808. Over 92 percent of pensioners receive less than $50,000 a year.
There’s another built-in problem, though. During some of the economic boom years prior to 2004, employer contributions to the pension fund actually dropped to zero. Politicians responded by sweetening pension packages — planting the seeds that blossomed into big bills when the boom ended.
By 2004, Albany was requiring public employers to make minimum yearly pension fund contributions. Employers also can smooth out big jumps in pension payments — which will allow Syracuse to spread its bill over several years.
It’s time to consider moving toward defined-contribution plans for the next tier of state employees. Eventually, the march of time will winnow the ranks of pensioners drawing some of the biggest checks. Rising costs also will keep up the pressure to restrain wages and cut back health benefits for public employees.
A new market boom on Wall Street would help underwrite growing pension costs. Meanwhile, the search must continue for other ways to relieve the crushing burden.
The stock-market crash of 2000-02 lit the fuse on a dec adelong explosion in taxpay er-funded contributions to New York City's municipal-pension systems. But a new report from Comptroller John Liu shows that roughly half the damage was avoidable -- resulting from the city's own bad policy choices and mismanagement.
According to the comptroller's analysis, the city's pension contributions from 2000 to 2010 were $31.6 billion higher than would have been expected under pre-2000 benefit levels and actuarial assumptions.
"Net investment losses" by the five city pension funds get the blame for $15.2 billion in added costs, or about 48 percent of the total increase over the 10-year period. No surprise there: The funds assumed an 8 percent annual return but actually earned an average of 2.5 percent.
Making matters worse, then-Mayor Rudolph Giuliani and the city's labor unions had agreed in May 2000 to "restart" pension calculations based on peak asset values, departing from a rolling five-year average that included lower values from prior years. That same spring, then-Gov. George Pataki and the state Legislature approved public-pension sweeteners that drove nearly $13 billion in cumulative pension cost increases for the city from 2000 to 2010. These included an automatic cost-of-living boost in pension benefits, enacted over Giuliani's objections.
The ink was barely dry on these deals when stock values started tanking -- destroying the optimistic financial assumptions that politicians had used to sell the pension sweeteners as a free lunch. Mayor Bloomberg, who often counts pensions among the city's "uncontrollable" expenses, isn't blameless in this story. Liu's report indicates that a total of more than $1 billion in added pension contributions have been generated by pension increases approved since Bloomberg took office.
The costliest, which has added $100 million a year to tax-funded pension costs, was an early-retirement package for teachers approved by the Legislature with Bloomberg's support in 2008. The mayor agreed to that perk in order to win union approval for an experimental incentive-pay program. While teachers who took advantage of the incentive will collect their fatter pensions for decades to come, the incentive program was branded a failure and is now history.
The Comptroller's Office itself, under Liu and his predecessor, William Thompson, is primarily responsible for $982 million in pension contributions attributable to "higher-than-expected investment and administrative fees" since 2000.
The result of all these factors is depicted in the above chart. Projected pension contributions in 2012 will consume fully 20 percent of projected tax revenue, crowding out basic services in an austere fiscal environment.
The long-term costs of New York's inflated pension promises were obscured or grossly understated until it was too late. Now the system is demanding more of taxpayers when they can least afford it. That's not a bug -- it's a feature of defined-benefit public-pension plans across the country.
Liu has done much to expand financial transparency in city government. But the comptroller, a staunch union ally, is unwilling to acknowledge the real implications of the pension data he's collected. Instead, his report concludes with a fairy-tale ending: "New Yorkers," it says, "should be proud that in spite of tough economic times the city has appropriately funded its pension
liabilities and, with normal
investment returns, the pension funds should become stronger
in the years to come."
In other words, we'll all live happily ever after. Sweet dreams!
Bloomberg, meanwhile, is taking a same-but-less approach to fixing pensions -- proposing to retain the DB system with higher retirement ages, lower benefit levels and higher employee contributions for new workers. Yet that approach has been tried before in New York -- and failed to deliver lasting savings. Unions can be expected to start clawing back any lost benefits as soon as pension costs fall back below "normal" levels, assuming they ever do.
The mayor also believes he can get a better pension deal by restoring direct collective bargaining of pension benefits between the city and its labor unions, which state law has prohibited for nearly 40 years. Yet, with the exception of the 2000 cost-of-living hike, nearly all the costly enhancements identified in Liu's report were endorsed by Bloomberg and his predecessors in contractual side-deals with the unions.
Ironically, New York City's biggest potential pension savings in decades are a gift from Albany. Then-Gov. David Paterson consigned newly hired city police and firefighters to a less expensive retirement plan when he vetoed a previously routine extension of the old police and fire "tier" in 2009. It's unlikely that Bloomberg could ever have achieved such a change at the bargaining table.
The comptroller's numbers make it clearer than ever that the traditional public-pension system has exposed New York taxpayers to intolerable levels of financial risk and volatility. The mayor needs to rethink his pension reform agenda -- and the comptroller needs to get one.
E.J. McMahon is a senior fellow at the Manhattan Institute's Empire Center for New York State
My View: Don't scapegoat public service workers for financial woes
By Danny Donohue
Published: 2:00 AM - 03/19/11
Let's use facts in the debate over public services.
The attack on Wisconsin's workers has dangerous consequences for middle-class workers everywhere. Gov. Scott Walker's extremism may be the most hateful example of the war on public unions, but it is not an isolated incident.
Many critics are using New York's budget crisis — Albany's $9 billion deficit — to scapegoat public workers. Attacks come mainly from business-backed organizations concerned more with Wall Street interests than those of Main Street.
Financial chicanery and corporate excess are excused to clear the field for a misleading narrative that denigrates frontline public workers and misrepresents facts about salaries, pensions and other benefits. Frontline state and municipal workers were not engaged in risky financial schemes that led to the global financial meltdown.
Who are public service workers? Nurses and medical workers taking care of you and your family; plow operators clearing roads in the worst of conditions so you can get to work and keep the state's economy going; school bus drivers and lunch ladies helping to provide a safe and healthy school experience for your children; technicians who test and protect your air and water — to name just a few jobs.
Workers like these, represented by CSEA, earn around $40,000 a year. State workers and most local government workers in New York pay toward their health insurance. Nearly all contribute toward their pensions, which average $14,000.
Those who advocate moving public employees from a defined benefit plan to a 401(k) type plan as a money-saving measure ignore that this would leave future security at the mercy of the stock market. Under a defined benefit plan, there is a guaranteed payout based on a formula that includes years of service and salary. A defined contribution plan means there is simply a set amount invested and the benefit at retirement depends on how well your investments performed. Defined contribution could also cost taxpayers more to administer.
When Wall Street was booming during the 1990s, state and municipal governments paid almost nothing into the retirement system, while workers continued to contribute 3 percent of their salaries each year. Recent reforms enacted because of stock market volatility now require minimum employer contributions in good times and bad. Yet, this responsible reform is at the heart of criticism of pension costs. The minimum requirement lessens the likelihood of a pension shortfall in New York.
New York's eight public employee pension systems are faring better than many pension systems nationally. They do have some issues that should be addressed such as padding and double-dipping. No one should be scamming the pension system — and it should be stopped — but it is not the majority of public service workers. A radical overhaul is not in the interest of either public employees or New York taxpayers.
Another favorite target for misrepresentation is the Triborough Amendment to the Taylor Law. Triborough simply maintains the terms of expired contracts (no, it does not give raises after contracts have expired) until a new agreement is reached. Since public employees are prohibited from striking in New York, Triborough forces good-faith negotiating. Without it, management could simply impose its terms after a contract has expired. Unchecked power will not mean better management or better government.
New York's financial problems are very real. Public service workers did not cause these problems. Beating up on people who are earning their paycheck week by week delivering services to New Yorkers will not make things better.
We live and work in every community in this state and want a better New York for all. That can only happen if working people are treated with fairness and respect based on actual facts.
Editor’s Note: NYSSBA supports the creation of retirement options beyond defined benefit plans. Below, another view.
By R. Michael Kraus Board President, New York Staten Teachers’ Retirement System
The long-term viability of defined benefit pension plans like those administered by the New York State Teachers’ Retirement System (TRS) has come under much scrutiny of late. The cost to taxpayers for funding public pension benefits has also been questioned.
While I do not expect these concerns to abate anytime soon, I assure you that the defined benefit (DB) model used by TRS is sustainable. Despite the historic market downturn experienced just a few years ago, TRS has remained fully funded. An analysis of state retirement systems by the Pew Center on the States in February 2010 found New York was one of only four states in this position.
In aggregate, states’ systems were 84 percent funded, according to the Pew report. The researchers labeled this “a relatively positive outcome” since most pension experts agree that an 80 percent funding level is indicative of healthy funding progress.
There are several reasons that New York is graded well-above-average in funding, the most important of which is that the state’s employers have made consistent, uninterrupted contributions to the pension funds. While other states have taken “pension holidays,” serving only to imperil the long-term health of these plans, New York has been diligent about its funding obligations.
The numbers speak for themselves. Over a 20-year period ended June 30, 2010, TRS’ investment returns accounted for 86 percent of its income. During that same time period, employer contributions accounted for only 11 percent of income. Over that same 20-year period, TRS took in $14.4 billion in member and employer contributions but paid out $58.9 billion – all while net assets more than doubled, from $30 billion to $76.8 billion. (As of Dec. 31, 2010, our net assets had climbed to $86.2 billion.)
Stated differently, TRS paid out more than four times what it took in over the last 20 years – and the system’s net assets still more than doubled. That certainly speaks to the question of sustainability.
Other factors contributing to our success include:
The ability to professionally and affordably manage a variety of risk-adjusted portfolios.
A long-term investment strategy that affords portfolio managers the time needed to rebuild reserves following market downturns like those experienced recently.
Regular contributions from both employees and employers.
Claims that DB plans like TRS are too burdensome for taxpayers do not take into account the economic efficiencies of DB plans compared to 401(k)-style plans. An exhaustive study conducted by the National Institute on Retirement Security – a non-partisan, non-profit research and education group based in Washington, D.C. – concluded the operating costs of DB plans are nearly half – 46 percent – of the costs of defined contribution (DC) plans such as 401(k) plans.
Part of the reason is that professionally managed DB plans historically have achieved higher investment returns than DC accounts, according to the report, called A Better Bang for the Buck: The Economic Efficiencies of Defined Benefit Pension Plans. A 1 percent improvement in annual investment returns results in a 26 percent cost savings over a person’s working career, according to the report.
Lower costs of DB plans also can be attributed to lower fees, more sophisticated risk-pooling and more diversified portfolios. As a result of these differences, DC plans require $549,903 in assets per employee at age 62 compared to just $342,962 for DB plans.
Public DB plans such as TRS have a particularly strong record. Figures from the National Association of State Retirement Administrators show since 1985 the median public pension plan rate of return was 9.25 percent, and TRS’s rate of return during the same period mirrors that figure (and comfortably exceeds our actuarially assumed rate of return of 8 percent). That performance is impressive considering that the period involved included three economic recessions and four years when median public pension fund investment returns were negative.
These statistics should halt any concerns of a so-called federal bailout of public retirement systems. On the contrary, state and local governments have taken many steps over the last few years to make pension-system changes that will further enhance the long-term sustainability of plans.
Last year, for example, New York instituted a new tier of public employee membership. Among other changes, Tier 5 requires TRS members who joined the system on or after Jan.1, 2010, to contribute 3.5 percent of their salary to TRS for the duration of their working careers. (Tier 1 and 2 members do not contribute; Tier 3 and 4 members contribute 3 percent of salary for their first 10 years of membership or service credit.) Over the long term, the additional revenues generated as a result of this change will have a positive impact on the overall health of the system.
The existing public sector pension model is not broken. To the contrary, the traditional public pension model – the defined benefit plan – is the most economical way to provide reliable retirement security. School board members can be confident that TRS is a secure and proven vehicle for providing retirement for more than 400,000 participants.
A commission has proposed that New York state create a new tier of pension eligibility in which new employees in defined benefit plans would pay higher employee contributions and for whom minimum retirement ages would be raised.
In addition, overtime would be excluded in pension calculations, and employees would have to work longer before qualifying for a pension.
The Mandate Relief Design Team offered no details about the proposed new pension tier in its preliminary report that was delivered to Gov. Andrew Cuomo on Tuesday. Changes in the pension system represented only one element of the report from the commission of private- and public-sector representatives that was created by the governor in January.
The commission recommended a new pension tier, called Tier 6, “in order to help municipalities and school districts address their rapidly escalating pension costs,” according to the preliminary report that is available on Mr. Cuomo’s website at www.governor.ny.gov/assets/documents/finalmandate.pdf.
The report said the estimated savings for the Tier 6 pension-level proposal for the local governments and school districts would be “nearly $50 billion” over 30 years.
The report noted that in 2009, New York State enacted a new, Tier 5 pension level for new employees in state and local governments outside of New York City and for teachers statewide. “Over the next 30 years, Tier 5 is expected to save local governments and schools $26.6 billion,” the report said.
“Although Tier 5 will produce savings for municipalities and schools, the amount of pressure that pension benefits place on municipalities, school districts and the property tax call for additional reforms,” the report said.
“Decade after decade, mandates have been piled on local governments and school districts, straining budgets and increasing pressure on taxpayers,” Mr. Cuomo said in a news release. “This is a good first step in helping cities, towns and villages across New York rein in costs and help taxpayers, and I look forward to additional findings throughout the year.”
New York’s pension system has a series of tiers, offering different benefits and imposing different requirements on employees depending on when they were hired. For example, the first tier covers all employees hired before June 30, 1973. Tier 5 covers employees hired after Jan. 1, 2010.
Facing huge budget difficulties, New Jersey Gov. Chris Christie has been showing other states how to survive -- namely, by taking on the government-employee unions.
Christie's battles with the teachers unions over the past year have produced countless YouTube hits. And last month, he got a law passed to limit wage hikes from labor arbitrations between the state and public-employee unions to an average 2 percent annual increase.
As New Jersey, New York, California and Illinois -- the four with the highest insurance premiums on their bonds -- face life without a compliant Congress to approve their pleas for more cash, they'll increasingly have to follow Christie's example and rein in their unions.
As Margaret Thatcher famously said, the problem with socialism is that sooner or later "you run out of other people's money."
When the states come calling, the House must say, "No." More, it's time to amend the federal bankruptcy laws to create a procedure for state bankruptcies -- allowing states to abrogate their municipal-union contracts from the school-board level on up.
States, in bankruptcy court, should be able to reorganize their finances so as to put themselves back on a stable footing.
Initially, municipal-bond buyers will protest the lack of federal assistance and may even deny states and localities access to the bond market at any interest rate. But once the states reorganize, they should be able to proceed normally -- just as New York City did after its financial meltdown in the '70s.
Such reorganizations needn't require any ongoing federal involvement. The procedure would let the states help themselves, giving governors and legislatures a third way out of their financial mess. Raise taxes, cut spending or . . . alter union contracts. Each state would face the choice of whether to wallow in overspending or take steps to correct it.
Initially, Democrats will oppose the idea of state bankruptcies. But when House Republicans make clear that no more aid will be forthcoming and that the stimulus spigot is turned off, at least some Democrats will realize this is their best option.
Then, fiscal necessity will have achieved what so many of us want -- a return of true local government.
No more will schools be run for the teachers and by the teachers -- nor will such unions as the Service Employees International Union and the American Federation of State, County and Municipal Employees dominate state legislatures. School choice, charter schools and even voucher programs will have a chance to flourish.
Some fear the US Constitution prevents federal law from extending Chapter 9 to permit state bankruptcies, because it would violate state sovereignty. Yet Chapter 9 is voluntary, so states would remain sovereign -- with merely the option of subjecting themselves to Chapter 9 constraints.
Giving insolvent states the power to break their union contracts would alter dramatically the balance of political power all across the nation. No longer would municipal unions have the financial ability to underwrite the Democratic Party. Gone from our politics would be $200 million that the American Federation of Teachers, the National Education Association, SEIU and AFSCME together spent on political action in the last election cycle.
Former House Speaker and possible GOP presidential contender Newt Gingrich is pushing for federal legislation giving financially strapped states the right to file for bankruptcy and renege on pension and other benefit promises made to state employees.
Proponents of the measure — which include Americans for Tax Reform, a Washington lobby group that fights tax increases — said the legislation is desperately needed to clear the way for struggling states to slash costs before they go belly up, and should be regarded as a preemptive move that could preclude the need for massive federal bailouts.
“It's in the short-term and long-term interests of government workers and taxpayers to start those reforms now, rather than having to pick up the pieces after a crash landing,” ATR President Grover Nor-quist said in an interview.
“We are working with people inside and outside of Congress on this issue,” said Joe DeSantis, a spokes-man for Mr. Gingrich, whom Mr. DeSantis said is considering a bid to be the Republican presidential candidate in 2012.
Mr. Gingrich discussed the proposal in a Nov. 11 speech before the Institute for Policy Innovation, an anti-big-government group based in Lewisville, Texas. According to a transcript of the speech on Mr. Gingrich's website, www.newt.org, he said: “I ... hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy, so that states like California and New York and Illinois that think they're going to come to Washington for money can be told, you know, you need to sit down with all your government employee unions and look at their health plans and their pension plans and, frankly, if they don't want to change, our recommendation is you go into bankruptcy court and let the bankruptcy judge change it, and I would make the federal bankruptcy law prohibit tax increases as part of the solution, so no bankruptcy judge could impose a tax increase on the people of the states.”
Concerns about the funded status of public pension plans are increasing because the aggregate public pension plan funding level dropped to 80% for the fiscal year ended June 30, 2009, the most recent year for which data are available, from 85% a year earlier, according to the National Association of State Retirement Administrators, Baton Rouge, La.
States whose plans have the lowest funded status ratios, also as of June 30, 2009, were Illinois, with 51%, and Kansas, Oklahoma and New Hampshire, each with 59%, according to an analysis of state pension fund annual report data by investment bank Loop Capital Markets LLC, Chicago (Pensions & Investments, Dec. 13).
Vow to fight proposal
State and union officials vow to fight the bankruptcy initiative, which they fear would undermine state autonomy and be used to reduce promised benefits to government workers.
“I am unaware of any public pension plan that is requesting federal assistance,” said Keith Brainard, NASRA research director.
“Exaggerated reports on the financial condition of public pension plans are being used as a scare tactic to justify federal intervention,” Mr. Brainard added.
Said Mark McCullough, a spokesman for the Service Employees International Union, Washington: “This is another right-wing attack on behalf of their (the GOP's) anti-middle class, big-business donor base.
“It would amount to not just another attack on working families, but an attack on everyone from investors to retirees who would see the economy reel from the ripple effects of state bankruptcy as they pursue the goal of making American workers expect no better pay or benefits than workers in the developing world.”
So far, proponents of the legislation said they have not yet recruited a congressional sponsor for the proposed measure. “We're still shopping for the guy who is going to carry it,” Mr. Norquist said.
Nonetheless, union executives are concerned that the proposal — which has been promoted on conservative websites recently — is part of a well-orchestrated and hitherto underground campaign now surfacing as Republicans settle into leadership positions in the new Congress.
“This idea carries major negative financial implications for the states, their creditors and the companies that do business with them,” said Charles Loveless, director of legislation for the American Federation of State, County and Municipal Employees, Washington. “A state going into bankruptcy would send shock waves through the states and could very well undermine our fragile national economic recovery,” he said.
“It is incredible to me that proponents of this portray themselves as advocates of state rights when what they're really doing is driving states into the ground,” Mr. Loveless added. “It's clearly in an effort to renege on public employee collective bargaining contracts.”
Need to backstop benefits
The bankruptcy proposal also raised concerns in some corners because there's no agency to back up the pension benefits of state workers the way the Pension Benefit Guaranty Corp. backstops benefits for participants in corporate-sponsored pension plans, said Babette Ceccotti, a partner at Cohen, Weiss and Simon LLP, a New York law firm that specializes in labor and employee benefit issues.
Proponents of the state bankruptcy legislation “are proposing the cuts, but not a safety net for people's retirement security,” she said.
But Mr. Norquist said that, assuming the proposal becomes law, not every state would file for bankruptcy — a right that municipal governments already have under Chapter 9 of the U.S. Bankruptcy Code.
“If you don't have this (a state bankruptcy process), you have New York, Illinois and California running off the rails because there's no way to fix their problems ... They've got these contracts with government workers that you can't alter,” Mr. Norquist said.
He said restructuring benefit obligations doesn't necessarily mean cutting the amount of money a retiree gets; it could involve freezing a public defined benefit plan and enrolling new employees in a defined contribution plan.
Rep. Devin Nunes, R-Calif. — who introduced legislation late last year that would require state and local plans to disclose their finances to the U.S. Treasury — had no immediate comment on the bankruptcy proposal, said his spokesman, Andrew House. “He's aware of the proposal, but has yet to take a public position on the issue,” Mr. House said.
The Nunes bill, which also would bar federal bailouts of public plans and deny a federal tax exemption for bonds issued by governmental entities that don't comply with the new disclosure requirements, will be reintroduced on Jan. 19, Mr. House said.
Mr. House said finances of state and local governments will be a hot-button issue on Capitol Hill this year. “The whole area of how to deal with soaring debt at all levels of government and the consequences to the national economy will be the subject of hearings in multiple committees,” Mr. House said.
Rep. Paul Ryan, R-Wis., who co-sponsored Mr. Nunes' bill, and became chairman of the House Budget Committee earlier this month, was also mum on the bankruptcy proposal.
“Congressman Ryan certainly shares the concerns that state governments across the country are failing to live within their means, just as he has expressed continued concern for Washington's fiscal recklessness,” said a spokesman for the Wisconsin lawmaker. “But the congressman has yet to decide how to address the state issues.”
PRICHARD, Ala. — This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.
Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.
Since then, Nettie Banks, 68, a retired Prichard police and fire dispatcher, has filed for bankruptcy. Alfred Arnold, a 66-year-old retired fire captain, has gone back to work as a shopping mall security guard to try to keep his house. Eddie Ragland, 59, a retired police captain, accepted help from colleagues, bake sales and collection jars after he was shot by a robber, leaving him badly wounded and unable to get to his new job as a police officer at the regional airport.
Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. “When they found him, he had no electricity and no running water in his house,” said David Anders, 58, a retired district fire chief. “He was a proud enough man that he wouldn’t accept help.”
The situation in Prichard is extremely unusual — the city has sought bankruptcy protection twice — but it proves that the unthinkable can, in fact, sometimes happen. And it stands as a warning to cities like Philadelphia and states like Illinois, whose pension funds are under great strain: if nothing changes, the money eventually does run out, and when that happens, misery and turmoil follow.
It is not just the pensioners who suffer when a pension fund runs dry. If a city tried to follow the law and pay its pensioners with money from its annual operating budget, it would probably have to adopt large tax increases, or make huge service cuts, to come up with the money.
Current city workers could find themselves paying into a pension plan that will not be there for their own retirements. In Prichard, some older workers have delayed retiring, since they cannot afford to give up their paychecks if no pension checks will follow.
So the declining, little-known city of Prichard is now attracting the attention of bankruptcy lawyers, labor leaders, municipal credit analysts and local officials from across the country. They want to see if the situation in Prichard, like the continuing bankruptcy of Vallejo, Calif., ultimately creates a legal precedent on whether distressed cities can legally cut or reduce their pensions, and if so, how.
“Prichard is the future,” said Michael Aguirre, the former San Diego city attorney, who has called for San Diego to declare bankruptcy and restructure its own outsize pension obligations. “We’re all on the same conveyor belt. Prichard is just a little further down the road.”
Many cities and states are struggling to keep their pension plans adequately funded, with varying success. New York City plans to put $8.3 billion into its pension fund next year, twice what it paid five years ago. Maryland is considering a proposal to raise the retirement age to 62 for all public workers with fewer than five years of service.
Illinois keeps borrowing money to invest in its pension funds, gambling that the funds’ investments will earn enough to pay back the debt with interest. New Jersey simply decided not to pay the $3.1 billion that was due its pension plan this year.
Colorado, Minnesota and South Dakota have all taken the unusual step of reducing the benefits they pay their current retirees by cutting cost-of-living increases; retirees in all three states are suing.
No state or city wants to wind up like Prichard.
Driving down Wilson Avenue here — a bleak stretch of shuttered storefronts, with pawn shops and beauty parlors that operate behind barred windows and signs warning of guard dogs — it is hard to see vestiges of the Prichard that was a boom town until the 1960s. The city once had thriving department stores, two theaters and even a zoo. “You couldn’t find a place to park in that city,” recalled Kenneth G. Turner, a retired paramedic whose grandfather pushed for the city’s incorporation in 1925.
The city’s rapid decline began in the 1970s. The growth of other suburbs, white flight and then middle-class flight all took their tolls, and the city’s population shrank by 40 percent to about 27,000 today, from its peak of 45,000. As people left, the city’s tax base dwindled.
Prichard’s pension plan was established by state law during the good times, in 1956, to supplement Social Security. By the standard of other public pension plans, and the six-figure pensions that draw outrage in places like California and New Jersey, it is not especially rich. Its biggest pension came to about $39,000 a year, for a retired fire chief with many years of service. The average retiree got around $12,000 a year. But the plan allowed workers to retire young, in their 50s. And its benefits were sweetened over time by the state legislature, which did not pay for the added benefits.
For many years, the city — like many other cities and states today — knew that its pension plan was underfunded. As recently as 2004, the city hired an actuary, who reported that “the plan is projected to exhaust the assets around 2009, at which time benefits will need to be paid directly from the city’s annual finances.”
The city had already taken the unusual step of reducing pension benefits by 8.5 percent for current retirees, after it declared bankruptcy in 1999, yielding to years of dwindling money, mismanagement and corruption. (A previous mayor was removed from office and found guilty of neglect of duty.) The city paid off its last creditors from the bankruptcy in 2007. But its current mayor, Ronald K. Davis, never complied with an order from the bankruptcy court to begin paying $16.5 million into the pension fund to reduce its shortfall.
A lawyer representing the city, R. Scott Williams, said that the city simply did not have the money. “The reality for Prichard is that if you took money to build the pension up, who’s going to pay the garbage man?” he asked. “Who’s going to pay to run the police department? Who’s going to pay the bill for the street lights? There’s only so much money to go around.”
Workers paid 5.5 percent of their salaries into the pension fund, and the city paid 10.5 percent. But the fund paid out more money than it took in, and by September 2009 there was no longer enough left in the fund to send out the $150,000 worth of monthly checks owed to the retirees. The city stopped paying its pensions. And no one stepped in to enforce the law.
The retirees, who were not unionized, sued. The city tried to block their suit by declaring bankruptcy, but a judge denied the request. The city is appealing. The retirees filed another suit, asking the city to pay at least some of the benefits they are owed. A mediation effort is expected to begin soon. Many retirees say they would accept reduced benefits.
Companies with pension plans are required by federal law to put money behind their promises years in advance, and the government can impose punitive taxes on those that fail to do so, or in some cases even seize their pension funds.
Companies are also required to protect their pension assets. So if a corporate pension fund falls below 60 cents’ worth of assets for every dollar of benefits owed, workers can no longer accrue additional benefits. (Prichard was down to just 33 cents on the dollar in 2003.)
And if a company goes bankrupt, the federal government can take over its pension plan and see that its retirees receive their benefits. Although some retirees receive less than they were promised, no retiree from a federally insured plan in the private sector has come away empty-handed since the federal pension law was enacted in 1974. The law does not cover public sector workers.
Last week several dozen retirees — one using a wheelchair, some with canes — attended the weekly City Council meeting, asking for something before Christmas. Mary Berg, 61, a former assistant city clerk whose mother was once the city’s zookeeper, read them the names of 11 retirees who had died since the checks stopped coming.
“I hope that on Christmas morning, when you are with your families around your Christmas trees, that you remember that most of the retirees will not be opening presents with their families,” she told them.
The budget did not move forward. Mayor Davis was out of town.
“Merry Christmas!” shouted a man from the back row of the folding chairs. The retirees filed out. One woman could not hold back her tears.
After the meeting, Troy Ephriam, a council member who became chairman of the pension fund when it was nearly broke, sat in his office and recalled some of the failed efforts to put more money into the pension fund.
“I think the biggest disappointment I have is that there was not a strong enough effort to put something in there,” he said. “And that’s the reason that it’s hard for me to look these people in the face: because I’m not certain we really gave our all to prevent this.”
In November 2003, the Manhattan Insti tute for Policy Research issued a report describing New York state's public-pension system as "a ticking fiscal time bomb." Seven years later, the bomb is exploding -- squeezing funding for all other public services, on top of the pressures from the slowed economy.
New Yorkers will be coping with the fallout for years to come.
In a new report released yesterday by the institute's Empire Center, we find that pension contributions will skyrocket over the next several years, because the state's pension funds made risky bets in the stock market and lost -- leaving taxpayers, not public employees, to pay the bill.
For example, school districts will pay $900 million into the New York State Teachers' Retirement System (NYSTRS) in the current fiscal year, but will be expected to come up with about $4.5 billion in fiscal year 2015-16. And that assumes that the fund manages to achieve its target of 8 percent return on assets for each of the next several years. If it falls short, the bill will be even larger.
Paying for that $3.6 billion increase will require an average rise of 3.5 percent a year in school property-tax levies for all districts outside New York City -- before covering any cost increases in areas beyond pensions. (By itself, this would bust the 2 percent property-tax cap that Gov.-elect Andrew Cuomo proposes.)
Meanwhile, contributions to the New York State and Local Retirement System (NYSLRS), which covers non-teachers outside New York City, will more than double, boosting taxpayer costs by $5 billion in the next five years.
The city itself, having experienced a tenfold increase in pension costs in the last 10 years, will see its pension contributions rise by at least 20 percent more in the next three years -- and probably much more thereafter.
It's not hard to understand why the bill is so large. From 2007 to 2009, the eight pension plans that cover most public employees in the state lost a collective $109 billion, or 29 percent of the assets they held. But because pension benefits aren't linked to asset performance, taxpayers must make extra payments to cover those investment losses.
NYSLRS and NYSTRS are "fully funded" by permissive government standards -- but not when evaluated using private-sector guidelines. We estimate that they're actually a whopping $120 billion short of what they'll need to make good on their promises. And the city fund is, if anything, deeper in the hole by real-world standards.
How did this happen? The problem with New York's pension systems goes far beyond the headline-grabbing abuses -- the pension-padding and overtime-spiking, not to mention the marathon-running firefighter on a sweet "disability" pension.
What's really driving up pension bills is the structure of the system itself -- which allows legislators to make generous promises to public employees today, with all the cost and risk borne by taxpayers years and decades in the future.
And that's why the necessary next step in pension reform for New York is not to mend the existing system, but to end it. Other benefit models can provide public employees with retirement security without threatening to crowd out vital services in a future fiscal crisis.
From the standpoint of employers and taxpayers, the best way to accomplish this would be to shift new employees to defined-contribution (DC) plans modeled on the 401(k) accounts now prevalent in the private sector, or the 403(b) plan available to SUNY and CUNY employees.
While a growing number of states are changing their pension systems (11 this year alone), only Michigan and Alaska have so far mandated pure DC plans. A recent Michigan State University report on that state's 1997 reform found that it "resulted in a plan with lower, more stable annual costs that does not expose the state to any long-term liabilities."
Earlier this year, Utah enacted a hybrid reform that offers each employee either a DC plan or a modified pension plan that caps the taxpayer contribution at 10 percent of salaries -- shifting most investment risk back to employees.
There need not be a single statewide model of reform. The next governor and Legislature could create a set of new retirement-plan options for local governments, school districts and public authorities to choose from. Some might opt for a pure DC plan and some for hybrids, while others might decide to allow their employees to choose between the two.
But state officials should not settle for creating a "Tier 6" that adjusts a few pension parameters while preserving a fatally flawed system that exposes taxpayers to potentially open-ended liabilities. This has failed time after time, because public-employee unions always ensure that any positive reforms are retroactively undone in the next bull market.
The main priority is to stop adding to the problem. As things now stand, rising pension costs threaten to starve public services at every level.
There is no better way for Andrew Cuomo to show his seriousness about fixing New York's dire finances than by championing the sort of fundamental pension reform that has eluded New York for the last four decades.
E.J. McMahon is a senior fellow of the Manhattan Institute, where Josh Barro is the Walter B. Wriston Fellow.
FDNY pension board to review firefighters' disabilities
By DAVID SEIFMAN
Last Updated: 11:29 AM, November 21, 2010
Posted: 12:30 AM, November 21, 2010
For the first time in 35 years, the Fire Department pension board is recalling two retired firefighters to determine whether the medical disabilities that allowed them to leave at a comfortable three-quarters pay still exist, The Post has learned.
Sources said letters went out last month instructing the two to report for new medical evaluations under the threat of losing their tax-free disability pension checks if they don't show.
One of the ex-firefighters is John Giuffrida, 42, who was spotlighted by The Post for competing in martial-arts kickboxing matches while pulling down $74,624 a year in disability pay after coming down with asthma and other lung ailments in 2003.
The second is James Kadnar, also 42, who started collecting $65,000 in 2006 based on a chronic sinus condition -- but who this year applied to become a cop in North Carolina and underwent what was described as a "vigorous four-month training program."
Kadnar came to the city's attention in July, when Sgt. D.M. Warnick of the New Hanover Sheriff's Department in Wilmington, NC, sent a letter to New York City Comptroller John Liu to report the ex-firefighter's application, noting that he had retired from the FDNY on a disability.
Warnick told The Post that Kadnar later dropped out of the program.
"He is not a cop," Warnick said.
According to the Basic Law Enforcement syllabus at Cape Fear Community College, where Kadnar took his training, police applicants at the end of 19 weeks have to be able to perform 11 physical feats in seven minutes and 20 seconds.
They include completing 20 push-ups and 20 sit-ups; scaling and descending staircases while touching all steps; dragging a person 50 feet; and crawling through a 40-foot-long culvert with a flashlight.
There's another reason officials should know Kadnar -- he's filed two lawsuits against the city.
In 2006, the year he retired, Kadnar claimed to have sustained "severe, serious and permanent personal injuries, including but not limited to toxoplasmosis [a parasitic infection], manifested by severe fatigue, high levels of toxins in his blood, significant pain and other injuries," as a result of cleaning out an FDNY maintenance warehouse contaminated by dead rats and fleas.
In 2004, Kadnar sued as a 9/11 responder, saying he was suffering from "reactive airway disease, clinical asthma, respiratory insufficiency and other injuries, the full extent of which have yet to be determined."
None of the ailments, apparently, stopped him from considering a new career as a cop.
A call to Kadnar's lawyer, Michael Block, was not returned Friday.
Giuffrida had previously told The Post that "I have nothing to hide" and that the conditions that forced him out of the FDNY "in no way preclude me living an active life in order to preserve my health."
The last time anyone could remember the FDNY pension board recalling a retiree for a medical checkup was in 1975, when ex-firefighter Gary Muhrke was asked to explain how he was able to win a race to the top of the Empire State Building after getting out with a bad back.
The medical board accepted his claim that the strength needed to run up 102 flights of stairs was different from that required for firefighting.
The pension board's crackdown comes as the city faces a record $8.3 billion pension bill next year -- more than 12 percent of the entire $68 billion budget. In Mayor Bloomberg's first budget in fiscal 2003, the pension bill was $1.8 billion, or 4 percent of the $44 billion being spent that year.
CASE #1 John Giuffrida, 42 * Claimed asthma and lung ailments * Retired in 2003, after 12 years * $74,624 annual tax-free pension, now under review * Giuffrida’s lung ailments didn’t stop him from hiking, scuba diving and becoming a mixed-martial-arts fighter who competes in grueling kickboxing matches.
CASE #2 James Kadnar, 42 * Claimed chronic sinus condition * Retired in 2006, after 13 years * $65,000 annual tax-free pension, now under review * Kadnar was able-bodied enough to get through the rigorous four-month training to be a North Carolina cop, which required him to do 20 push-ups and sit-ups, crawl through a culvert, drag a person 50 feet and scale staircases all in 7 minutes, 20 seconds.
New York state and local governments' liabilities for retiree health coverage run to the hundreds of billions of dollars -- a burden that's only now coming into full view.
Governments in the state spend billions a year on health-insurance for their retired employees -- a benefit that will never be available to the vast majority working in the private sector.
Unlike pensions, which are at least partly pre-funded through large investment pools, retiree health care in New York's public sector comes out of annual budgets on a "pay-as-you-go" basis.
In New York City alone, the tab for that has risen 50 percent in the last five years. It'll hit $1.8 billion in fiscal 2011, and is expected to grow another half-billion dollars in the next three years.
But the pay-go expense of retiree health insurance -- which accountants call "Other Post-Employment Benefits," or OPEB -- is just the tip of a massive iceberg. Thanks to a new accounting standard, we're finally starting to learn the full, long-term cost of the public sector's retiree health-care promises.
What's emerging from the murky depths of government financial reports is a potentially monumental burden on future generations of New Yorkers -- a burden in addition to the cost of public pensions.
As detailed in a new study by the Manhattan Institute's Empire Center, unfunded OPEB liabilities in New York include:
* $60 billion for the state government.
* $13.8 billion for the state's 20 largest counties.
* And $6.5 billion for the top 20 school districts.
New York City's unfunded OPEB liability of $62 billion was tied with the state of California's for the largest in the country as of mid-2008. The Metropolitan Transportation Authority alone has amassed an unfunded liability of more than $13 billion.
Based on totals for the biggest pubic employers, I estimate that the unfunded OPEB liability for every level of government in New York comes to at least $205 billion -- equivalent to more than three-quarters of state and local bonded indebtedness.
Since Medicare is the primary coverage for Americans over 65, why is OPEB so expensive? First, most government employees retire early -- decades early, in the case of cops and firefighters. Second, most government plans provide backup for Medicare, including reimbursement of the $111-a-month Medicare premium.
The accounting rule doesn't require governments to pay their unfunded OPEB liabilities all at once, but it does oblige them to report whether they're making progress in pre-funding the benefit over a 30-year "amortization" period. The longer they do nothing about it, the bigger the number that hits their balance sheets.
In the two years since the new accounting rule took effect, the unfunded liability of New York's state government has grown by $8 billion. At this rate, within 10 years, the state's liabilities will exceed its total assets -- a condition accountants call "balance-sheet insolvency."
New York City is already there. Unlike other large governments, it chose not to spread its theoretical catch-up cost over 30 years. Instead, with breathtaking transparency, the city has booked its entire OPEB liability all at once. The result: As of fiscal 2008, the city government's balance sheet showed negative net assets of $97 billion.
Investors in city bonds apparently assume that the municipal OPEB obligation isn't really binding in the same sense as general obligation debt. If so, someone needs to break the news to municipal labor unions -- whose members do assume they'll receive lifetime health coverage if they retire from the city payroll. Other public employees around the state no doubt assume the same.
As these employees continue to accrue benefits, the cost is being shifted to future generations. This is why it is essential for elected officials to begin confronting the full financial implications of their retiree health-care promises.
The good news is that retiree health benefits, unlike pensions, aren't guaranteed by the state Constitution. Elected officials can still change course by restructuring health benefits for both current retirees and active employees.
How to burst this bubble? Early retirees in the public-sector should be required to pay a larger share of their premiums, and those over 65 should at least pay their Medicare premiums. Younger workers should be shifted into retirement medical trusts, supported by matching contributions from employers and employees, which would take the obligation off the backs of taxpayers.
The next governor and Legislature should move quickly to repeal a recent law that hinders such changes in school-district retiree benefits. The state Taylor Law, which has long prohibited collective bargaining of pension benefits, should be amended to prohibit collective bargaining of retiree health care, as well.
It's time to stop shoving massive, hidden costs onto the backs of future taxpayers.
E.J. McMahon directs the Man hattan Institute's Empire Center for New York State Policy. ejm@empirecenter.org
Dramatic changes to N.J. pension and health benefits proposed by Christie
Tuesday, 14 September 2010 15:18
BY TOM HESTER SR.
NEWJERSEYNEWSROOM.COM
Gov. Chris Christie Tuesday unveiled a legislative package that as he described it is designed to make the state and local employee pension system sustainable for current and future retirees and to bring fairness and affordability to the public employee health benefits system.
Christie said the proposals are long overdue and needed to shake up New Jersey's "out-of-date, antiquated and increasingly expensive pension and benefits systems, and restore fairness and affordability to the level of costs that current and future generations of New Jersey taxpayers must bear.''
The cost of the pension system continue to grow and threaten to collapse it and force state and local governments to expend limited budget resources on what the governor sees as overgenerous pension and health benefits. The Christie agenda for pension and benefits is an attempt to modernize the pension and benefit systems and ensure long-term solvency without raising taxes or cutting essential government services.
Christie's plan addresses the problems of skyrocketing costs and taxpayer-borne expenses in these systems by offering what he described as comprehensive solutions, while rejecting the Trenton political culture that has expanding benefits without regard to how to pay for them.
"It is clear that our state can no longer afford a system that is rife with abuse, that promises substantial payouts with little buy-in, and that provides benefits that are wildly out of proportion with the private sector,'' Christie said. "The costs in the system remain dangerously out of balance and additional reforms are necessary to ensure the future solvency of the system."
Key changes in the governor's plan will attempt to modernize New Jersey's public employee health plans with the intention of providing savings for taxpayers, increasing choice for employees.
"I know these reforms will not be popular with everyone," Christie said. "I also know that failure to follow through with dramatic pension reform will imperil the system for everyone, and that failure to control and share costs of health care benefits will continue to eat away at our state and local budgets. We must reverse the damage caused by fairy tale promises that have fattened benefits and pensions to unsustainable levels while ballooning unfunded liabilities to breathtaking levels."
The pension legislation is designed to change the current system by bringing public employee costs into line with other states and the federal government. The governor argues that updating an out-of-date pension system will save taxpayer dollars, dramatically reduce unfunded liabilities over time and ensure long-term stability with better than 90 percent actuarial funding within 30 years.
Christie said that absent his proposals, New Jersey's unfunded pension liability will spike from $46 billion Tuesday, to $181 billion by 2041.
The governor also argues the cost of public employee benefits to taxpayers will grow 40 percent over the next four years. The cost to New Jerseyans for public employee benefits has already doubled as a percentage of state budget since 2001.
The proposals released Tuesday follow Christie's Ethics Reform Plan as the second specific policy proposals of the broader Christie Reform Agenda outlined by the governor last week. Additional proposals address the issues of economic development and job creation as well as education will be released in the coming weeks.
Assembly Speaker Sheila Y. Oliver (D-Essex) indicated Democrats are willing to consider the proposals but she also suggested that Christie needs to discuss the proposals with public employee union leaders.
"Our goal remains to create sustainable benefits for valued public servants such as teachers, police officers and firefighters that is also affordable to taxpayers,'' Oliver said. "To that end, the Assembly Budget Committee will review these proposals and the current state of our pension and benefits system.
"But I also want a higher level of discourse,'' Oliver added. "I am tired of the approach that divides our state. Leaders unite and build consensus. They do not divide and conquer and create enemies of the people who teach our children and protect our safety. I strongly encourage the governor to sit down with the public worker unions and negotiate meaningful reforms. All sides should do this with an open mind, without acrimony and the goal of doing what's best for all taxpayers."
Commenting on the proposals, state Senate President Stephen M. Sweeney (D-Gloucester) said, "For years, I have been concerned with the growing magnitude of the crisis that has left the pension system on the edge of collapse. Obviously, the governor shares that concern.
"The governor is halfway there,'' Sweeney said. "We do need further reform to keep the public pension system afloat, but we also need show we are committed to making the system work for the lifelong employees who are relying on it for a secure retirement.
"The governor must follow the law he signed only six months ago and put money into the pension system,'' Sweeney said. "I am more than ready to sit with the governor and discuss needed reforms, but they will not move in the Senate until a check is cut, deposited and cleared. We can't expect public workers to pay more and not hold up our end of the deal any longer. If the problem is as great as the treasurer says, we can't expect workers to shoulder the entire cost of fixing it. It doesn't matter what else is proposed. Unless we pay into the system, it will remain broken."
Assemblyman John Wisniewski (D-Middlesex), the state Democratic chairman, provided another view of how the Democratic majority that controls the Legislature may react to Christie's proposals. He said the governor needs to live up to his commitments and re-pay money he borrowed from the pension system before pushing the changes.
"Even when considering changes, we have a moral obligation not to break the promises that have been made by the state of New Jersey to countless public employees regarding the benefits they will receive when they retire," Wisniewski said.
"As a candidate, Christie talked about the need to keep faith with those people that were promised certain benefits because they made plans for their life based on that,'' Wisniewski added. "Now he argues that we have no choice, but what he's really doing is breaking his promise and putting his own political agenda ahead of his moral obligations as governor."
Assembly Republican Leader Alex DeCroce (R-Morris) said, "New Jersey can no longer wait to address its pension and health benefit crisis. Governor Christie is making the difficult and necessary decisions needed to give taxpayers relief and ensure the pension program is solvent for public employees. Unless major reforms are made to the present system its future is in jeopardy.
"The governor is attacking another problem that has languished in Trenton for years,'' DeCroce added. "His plan is the only one put forth that proposes substantive long-term solutions. It is imperative that we focus our efforts on making the pension system viable by working in a bipartisan manner to enact the reforms needed that will guarantee the program is sound for the future."
The League of Municipalities, the Trenton-based lobbying arm for municipal governments, welcomed Christie's proposals. Bill Dressel, the League's director, said personnel costs are the leading driver of property taxes. He added that pension and benefit costs continue to grow faster than any other local budget line items.
"The governor can count on our support in moving many of these reforms forward," Clifton Mayor Jim Anzaldi, the League's president, said. "We need to see action on management reforms and mandates relief initiatives immediately, so that local officials can cope with the new 2% cap next year. We need to see these new reform concepts introduced in bill form. Then, we need to see action on pension and benefits reform, so that we can continue to deliver high quality local services and long-term property tax relief, into the future."
Anzaldi said many of the proposals have been made by administrations over the years but little action was taken.
"The members of the Police and Fire system will continue to enjoy much more generous benefits than their colleagues in the public's service," Dressel said. "Those benefits are much more costly to our taxpayers. With the noted exception of the disability pension reform proposal, the governor's recommendations fail to recognize the disparity between PERS and PFRS benefits and costs. We regret that the proposals do not do more to address that disparity. We hope that we can work with the administration and the Legislature to correct that deficiency."
Here are the governor's proposals as described by his office:
Christie is proposing changes to bring solvency and long-term stability to the following pension systems: Public Employee Retirement System (PERS), Teachers Pension and Annuity Fund (TPAF), State Police Retirement System (SPRS), Police and Fire Retirement System (PFRS), and Judicial Retirement System (JRS).
Changes for All PERS and TPAF Employees:
Rolling back the 9 percent increase for future service: Christie's proposal adjusts the benefit formula to age 65 for future service from the current age 55. This change will roll back the 9 percent benefit increase for all future earned credit in the pension systems, a change that was authorized in 2001 without any way to pay for it, and will also conform the benefit formula to the proposed new retirement age. This change is not retroactive for prior service earned by current employees.
Changes for PERS and TPAF Employees with fewer than 25 years of service:
Updating the age for retirement eligibility:
Establishing the normal and early retirement age at 65
Increasing eligibility for early retirement from 25 to 30 years of employment
Adjusting the early retirement penalty to 3 percent for each year
A fairer calculation of retirement benefits: This change will require the use of an employee's average annual salary over the highest 5 years, rather than highest 3 years, when calculating their final retirement payout.
Changes for PFRS & SPRS with fewer than 25 years of service:
Updating the age for "special retirement" eligibility:
Changes eligibility for special retirement from 65 percent with 25 years of service to 65 percent with 30 years and 60 percent with 25 years.
A fairer calculation of retirement benefits: This change will require the use of an employee's average annual salary over the highest 3 years, rather than the highest year, when calculating their final retirement payout.
Changes for All Active Employees (PERS, TPAF, PFRS, SPRS & JRS):
Setting employee contribution rates at a fair, uniform level across retirement systems.
Employee contributions currently vary among the systems, from a low of 3 percent to 8.5 percent. Christie's reforms will align employee contribution rates at a uniform 8.5 percent.
Changes for All Current and Future Retirees:
Eliminating automatic annual payment increases: Christie's proposal calls for the elimination of additional annual future cost of living adjustments.
Many states are reducing pension liabilities by lowering or eliminating cost of living adjustments (COLA), or eliminating COLAs for current and future employees. For example, Colorado reduced its 2010 COLA from 3.5 percent to 0 percent with a rate of 2 percent starting in 2011. Minnesota reduced COLAs from 2.5 percent to 1-2 percent depending on the fund, and South Dakota made a 1 percent reduction in 2010 with future years COLAs based on investment performance.
Changes for a More Accurate and Honest Financial Forecast:
Adjust the anticipated rate of return used by the pension fund from 8.25 percent to 7.5 percent to reflect a more realistic picture of today's investment climate; and move the amortization methodology from a percentage of pay schedule (which defers the retirement of any unfunded liability) to a level dollar amount each year in order to retire part of the state's unfunded liability earlier.
Disability Reform Proposals:
Address the growing abuse of accidental disability expenses by better defining the standards for qualification.
Making PFRS and SPRS earnings tests match those used in PERS and TPAF: PFRS and SPRS members would not be able to earn more than the difference between the disability allowance and the projected salary that they would have earned had they remained in police/firefighter employment.
Action is required now before the pension problem Grows to out-of-control proportions
Without action, the total unfunded liability in the system will skyrocket to a shocking total of $181 billion over the next three decades. By 2041, New Jersey will be faced with a $119 billion state obligation, while local municipalities will be looking at a $62 billion burden.
The probability of investment returns making up for the shortfall is very low. The Pension Fund's annualized return on investment was 2.6 percent over the last 10 years and a negative 1.4 percent over the last three years. Additionally, costs will increase more than 430 percent over the next 30 years, and this funding burden will dramatically impact New Jersey's fiscal health and threaten critical resources for education, municipal aid and countless other priorities.
Comptroller says state retirement fund employer contribution rates will increase in 2012
By BRENDAN SCOTT
Last Updated: 11:50 AM, September 2, 2010
Posted: 11:49 AM, September 2, 2010
ALBANY -- With the economy continuing to show signs of weakness, State Comptroller Tom DiNapoli announced today increases over the previous year in the 2011-12 employer contribution rates for the state's retirement fund.
DiNapoli also said his office had accepted the Retirement System actuary’s recommendations for the assumptions used in calculating employer contribution rates.
“Unfortunately, it takes the economy a lot longer to climb out of a hole than it takes to fall in it,” he said. “The markets are still recovering from the 2008-09 financial meltdown, and that recovery continues to be volatile. We handled the meltdown better than most pension funds, but we’re still feeling the impact, and, as I have consistently cautioned, the employer contribution rates I’m announcing today will reflect the impact of the financial crisis.”
The average contribution rate for the Employee Retirement System will increase from 11.9 percent of salaries to 16.3 percent. The average contribution for the Police and Fire Retirement System is increasing from 18.2 percent 21.6 percent.
“By law we are required to review our assumptions every five years, including the assumption for the investment rate of return on the Pension Fund’s investments,” DiNapoli added.
The rate has been locked at 8 percent since 2000, and DiNapoli's office had as late as June defended it as "the industry standard" despite warnings from budget hawks that the rosy number masked a looming pension crisis.
The comptroller was mulling an internal recommendation and could also peg pension growth at 7.75 percent when he makes a final decision next month, Whalen said.
Either way, the fund's expected rate of return would sink to its lowest level since 1985.
Some local governments say state's pension borrowing plan is too risky
The Journal News - White Plains, N.Y.
Author:
Joseph Spector
Date:
Jul 5, 2010
Start Page:
A.1
Section:
NEWS
Text Word Count:
862
Document Text
ALBANY -- Municipalities are offering mixed reviews of a plan by the state Legislature and Comptroller Thomas DiNapoli to allow the state and local governments to essentially borrow from the state pension fund to lower huge spikes in retirement costs.
The measure, which has already passed the Assembly and awaits a vote in the Senate, would let state and local governments delay a portion of their pension costs into future years at an annual interest rate of about 5 percent, officials said.
Some local governments are praising the proposal as a way to help them better manage pension costs, which for local governments are expected to soar by 61 percent next year. But others view it as another borrowing scheme by the state to avoid spending cuts and limits on public-employee benefits.
Pension costs are rising rapidly in New York as the result of payouts to retirees and the continuing economic problems in the state and country.
"Rather than cut spending and try to reduce the money we spend, we continue to look at ways to borrow, to bond and just get ourselves deeper in debt," said Chemung County Executive Tom Santulli, president of the state Association of Counties.
Santulli said the county, which expects pension costs to rise about 40 percent next year from about $4.3 million to $6.1 million, would only enter the program if the county was desperate financially, saying the move would just delay payments and add interest to the costs.
Westchester County budget director Lawrence Soule said the county has concerns about the proposal, but hasn't made any determination about whether it would participate. Next year, the county's pension contributions are expected to increase from $55 million to $76 million, a roughly 38 percent increase.
"I would categorize it as borrowing. Essentially you are deferring a payment and you'll pay some kind of interest rate on it," he said.
Some counties, however, said they would likely enter the program, if approved, as a way to better manage pension expenses.
"I think it allows for governments, rather than have to absorb this big spike as far as pension costs go in one fiscal year, it allows us to smooth it over a few fiscal years," said Scott Adair, the chief financial officer in Monroe County.
In Monroe County, pension costs are expected to increase next year about 40 percent as well, from $20 million to $28 million.
According to DiNapoli's estimates without the program taking effect, local governments could be paying out a cost equal to 30 percent of their public payrolls to pay for pensions in 2015. For fire and police pensions, the rate could be 41 percent.
Taxpayers dole out about $2.5 billion a year for the state's pension system, but the growth would be capped under the pension plan. Local governments and the state could opt in or out of the program, which is expected to pass the Senate.
"This is not an ideal situation, but some counties are going to take advantage of the ability to spread out these increased costs -- because they have to," said Mark LaVigne, a spokesman for the state Association of Counties, saying counties continue to get hit with unfunded mandates.
Peter Baynes, executive director of the state Conference of Mayors, said the program would benefit many local governments.
"I think at the end of the day it's really just a fiscal-management tool that allows for local governments to try to control costs that are rising exorbitantly," Baynes said.
E.J. McMahon, executive director of the conservative Empire Center for New York State Policy, said the costs to state and local governments would be significant if the plan goes forward.
He estimated, based on state data, that in the first three years of the program, the state could be deferring $1.6 billion in pension costs while local governments would be deferring as much as $3.7 billion.
Gov. David Paterson proposed a pension-borrowing plan that only lasted six years. It also didn't include a DiNapoli initiative that would require local governments to put aside additional revenue when pension costs drop to help balance the fund when bad fiscal years return.
DiNapoli has faced criticism from his Republican opponent Harry Wilson, who is challenging DiNapoli, a Democrat, in the November elections.
Wilson, a former hedge-fund partner, has assailed DiNapoli as jeopardizing the roughly $133 billion pension fund by allowing state and local governments to borrow from it. He said the move, along with DiNapoli's estimate of an 8 percent return on the fund, would create an unneeded risk for the pension fund and lead to higher pension costs in future years.
"It's unequivocally borrowing from the pension fund. And I think that's wrong," Wilson said.
DiNapoli and his aides have argued that the proposal wouldn't be a form of borrowing, but instead an amortization of pension costs in which the payments are spread out over a longer period of time.
"It would provide for more stability, more predictability which will help local governments in managing this obligation," DiNapoli said Thursday on Talk 1300-AM in Albany.
The state pension pays benefits to about 350,000 retirees and has 650,000 members who are still working.
ALBANY -- State Comptroller Thomas DiNapoli revealed plans yesterday to slash the state pension fund's growth forecast for the first time in a decade amid growing concerns about exploding retirement costs.
The comptroller is considering cutting the $133 billion pension fund's expected rate of return to as low as 7.5 percent, DiNapoli spokesman Robert Whalen said, a move that could sock local taxpayers with hundreds of millions -- if not billions -- of dollars in new costs.
"It is likely that the assumed rate of return will be reduced," Whalen said. "You could see the writing on the wall with what was coming."
The rate has been locked at 8 percent since 2000, and DiNapoli's office had as late as June defended it as "the industry standard" despite warnings from budget hawks that the rosy number masked a looming pension crisis.
The comptroller was mulling an internal recommendation and could also peg pension growth at 7.75 percent when he makes a final decision next month, Whalen said.
Either way, the fund's expected rate of return would sink to its lowest level since 1985.
"It's just trading one economic fallacy for another," said E.J. McMahon, of the business-backed Manhattan Institute. "Do you know anyone not named Madoff who's willing to guarantee you a 7.5 percent rate of return?"
The seemingly subtle shift, however, could mean a big hit for local governments, which count pension payments among their largest expenses.
Before any change, local pension contributions were slated to rise from 7.4 percent of payroll this year to 11.9 percent next year.
"I'm sure it's going to be very significant," said Peter Baynes, of the New York Conference of Mayors. "Pension costs are already devouring budgets and driving up property taxes. It's only going to make matters worse."
For example, local governments are on the hook for an estimated $3.9 billion in pension costs next year under the current growth rate of 8 percent. Lowering the rate to 6 percent would increase the bill to $10.3 billion.
DiNapoli's Republican opponent, former hedge-fund manager Harry Wilson, advocates cutting the growth rate to 5 or 6 percent but says the comptroller should first act to prevent taxpayers from making up the difference.
"Mr. DiNapoli should be providing New Yorkers with the truth of just how big our pension hole is and what reforms can be put in place to manage that problem over time," Wilson said. "Instead, he just socks the taxpayers with the bill without any effort to deal with this massive problem."
DiNapoli's announcement came on the same day two leading pension experts released a nationwide study showing that state and local governments could be low-balling pension liabilities by more than $3 trillion.
The Northwestern University report found that taxpayers would still face a $1 trillion bill to cover retirements of public workers even if state legislators eliminated cost-of-living increases and raised the retirement age.
Retirement planning State pension fund by the numbers
$133B Size of fund 8% Current rate of return 7.5% New rate mulled by Comptroller Thomas DiNapoli (pictured) 2000 Year rate was last changed 1985 Last time it fell below 8% 1M Pensioners covered by plan
There’s a class war coming to the world of government pensions.
The haves are retirees who were once state or municipal workers. Their seemingly guaranteed and ever-escalating monthly pension benefits are breaking budgets nationwide.
The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed. And soon, many of those people will be paying higher taxes or getting fewer state services as their states put more money aside to cover those pension checks.
At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying.
The figure comes from a study by the Pew Center on the States that came out in February. Pew estimated a $1 trillion gap as of fiscal 2008 between what states had promised workers in the way of retiree pension, health care and other benefits and the money they currently had to pay for it all. And some economists say that Pew is too conservative and the problem is two or three times as large.
So a question of extraordinary financial, political, legal and moral complexity emerges, something that every one of us will be taking into town meetings and voting booths for years to come: Given how wrong past pension projections were, who should pay to fill the 13-figure financing gap?
Consider what’s going on in Colorado — and what is likely to unfold in other states and municipalities around the country.
Earlier this year, in an act of rare political courage, a bipartisan coalition of state legislators passed a pension overhaul bill. Among other things, the bill reduced the raise that people who are already retired get in their pension checks each year.
This sort of thing just isn’t done. States have asked current workers to contribute more, tweaked the formula for future hires or banned them from the pension plan altogether. But this was apparently the first time that state legislators had forced current retirees to share the pain.
Sharing the burden seems to be the obvious solution so we don’t continue to kick the problem into the future. “We have to take this on, if there is any way of bringing fiscal sanity to our children,” said former Gov. Richard Lamm of Colorado, a Democrat. “The New Deal is demographically obsolete. You can’t fund the dream of the 1960s on the economy of 2010.”
But in Colorado, some retirees and those eligible to retire still want to live that dream. So they sued the state to keep all of the annual cost-of-living increases they thought they would be getting in perpetuity.
The state’s case turns, in part, on whether it is an “actuarial necessity” for the Legislature to make a change. To Meredith Williams, executive director of the Public Employees’ Retirement Association, the state’s pension fund, the answer is pretty simple. “If something didn’t change, we would have run out of money in the foreseeable future,” he said. “So no one would have been paid anything.”
Meanwhile, Gary R. Justus, a former teacher who is one of the lead plaintiffs in the case against the state, asks taxpayers in Colorado and elsewhere to consider an ethical question: Why is the state so quick to break its promises?
After all, he and others like him served their neighbors dutifully for decades. And along the way, state employees made big decisions (and built lifelong financial plans) based on retiring with a full pension that was promised to them in a contract that they say has the force of the state and federal constitutions standing behind it. To them it is deferred compensation, and taking it away is akin to not paying a contractor for paving state highways.
And actuarial necessity or not, Mr. Justus said he didn’t believe he should be responsible for past pension underfunding and the foolish risks that pension managers made with his money long after he retired in 2003.
The changes the Legislature made don’t seem like much: there’s currently a 2 percent cap in retirees’ cost-of-living adjustment for their pension checks instead of the 3.5 percent raise that many of them received before.
But Stephen Pincus, a lawyer for the retirees who have filed suit, estimates that the change will cost pensioners with 30 years of service an average of $165,000 each over the next 20 years.
Mr. Justus, 62, who taught math for 29 years in the Denver public schools, says he thinks it could cost him half a million dollars if he lives another 30 years. He also notes that just about all state workers in Colorado do not (and cannot) pay into Social Security, so the pension is all retirees have to live on unless they have other savings.
No one disputes these figures. Instead, they apologize. “All I can say is that I am sorry,” said Brandon Shaffer, a Democrat, the president of the Colorado State Senate, who helped lead the bipartisan coalition that pushed through the changes. (He also had to break the news to his mom, a retired teacher.) “I am tremendously sympathetic. But as a steward of the public trust, this is what we had to do to preserve the retirement fund.”
Taxpayers, whose payments are also helping to restock Colorado’s pension fund, may not be as sympathetic, though. The average retiree in the fund stopped working at the sprightly age of 58 and deposits a check for $2,883 each month. Many of them also got a 3.5 percent annual raise, no matter what inflation was, until the rules changed this year.
Private sector retirees who want their own monthly $2,883 check for life, complete with inflation adjustments, would need an immediate fixed annuity if they don’t have a pension. A 58-year-old male shopping for one from an A-rated insurance company would have to hand over a minimum of $860,000, according to Craig Hemke of Buyapension.com. A woman would need at least $928,000, because of her longer life expectancy.
Who among aspiring retirees has a nest egg that size, let alone people with the same moderate earning history as many state employees? And who wants to pay to top off someone else’s pile of money via increased income taxes or a radical decline in state services?
If you find the argument of Colorado’s retirees wanting, let your local legislator know that you don’t want to be responsible for every last dollar necessary to cover pension guarantees gone horribly awry. After all, many government employee unions will be taking contrary positions and doing so rather loudly.
If you work for a state or local government, start saving money outside of the pension plan if you haven’t already, because that plan may not last for as long as you need it.
And if you’re a government retiree or getting close to the end of your career? Consider what it means to be a citizen in a community. And what it means to be civil instead of litigious, coming to the table and making a compromise before politicians shove it down your throat and you feel compelled to challenge them to a courthouse brawl.
“We have to do what unions call givebacks,” said Mr. Lamm, the former Colorado governor. “That’s the only way to sanity. Any other alternative, therein lies dragons.”
