February 2011
February 08, 2011

New York State Pensions: Sound, secure and a savings for taxpayers

Author: Clarisse Banks
Source: NYSUT United

Long considered a leader in innovation and education, New York has also been recognized for its sound funding of the state's retirement systems.

Both the Pew Center on the States and Governing magazine ranked New York ahead of the curve, "with the country's highest funded public pension." The Pew report cited the state as a national leader in managing its long-term pension liability. The study also noted changes to the state's systems that will help to ensure its long-term viability.

Those distinctions are important to note as the state continues to grapple with fiscal uncertainty. In the current economic climate, the once sturdy three-legged stool of retirement security — pensions, personal savings and Social Security — is in serious jeopardy. As attacks on benefits for public and private workers increase, more older Americans are facing financial uncertainty, a situation that could further strain government services.

"Having a pension is an important part of a secure future for, all Americans" said NYSUT President Dick Iannuzzi. "The issue isn't that public employees have pensions, but for many Americans it's a vanishing dream."

A study by the National Institute on Retirement Security found the poverty rate among older households is six times greater for those without traditional defined-benefit pension income. More than 16 percent of older households without a pension receive public assistance in the form of food stamps, rent subsidies or energy assistance.

A 2009 survey by the nonprofit ExperienceWorks found 68 percent of job seekers older than 55 said their retirement income is not enough to live on. More than 45 percent said they need to work so they don't lose their homes or apartments, and 24 percent said they need to work to cover medical expenses.

And the nonprofit, nonpartisan Employee Benefit Research Institute found only 29 percent of workers believe they will have enough money to pay for basic expenses during retirement.

As private companies abandon their pension obligations and more state and local governments move toward a defined-contribution — 401(k) or 403(b) — type system, the reality of retiring is growing out of reach for more and more workers.

That lack of worker confidence only exacerbates the unemployment problem as older, higher-paid workers are forced to remain in the workforce even longer.

The ongoing fiscal crisis and continued erosion of private employee benefits has set a bull's-eye squarely on public employees' traditional pensions, according to NYSUT Executive Vice President Andy Pallotta.

"Instead of fighting to make sure more workers are secure and have the means to retire, too many would seek to place the blame for the state's fiscal crisis on educators and other public employees," he said.

James Parrott, deputy director and chief economist for the Fiscal Policy Institute, agrees.

"Not surprisingly, these attacks often come from political forces who supported corporate raids on private-sector pensions over the last generation, and who are now seeking cuts in Social Security benefits," Parrott said. "It's an agenda that is harmful to the retirement security of all Americans."

Opponents of New York's current system point to the anticipated increase in employer contribution rates for the state's Teachers' Retirement System as one example of rising costs — district contributions are expected to increase from 8.6 percent in the current school year to at least 11 percent in 2011-12.

Conveniently left out of the discussion, however, is the fact that employer contributions have been in the single digits since 1989, with six years of payments at less than 1.5 percent of payroll.

State plans are also funded by employee contributions. Members of the State and Local Employees Retirement System, representing school-related professionals, contributed $284.3 million in the 2010 fiscal year, for example.

With the introduction of Tier 5, which lawmakers said would reflect a cost saving of more than $35 billion over 30 years, state and local workers are contributing even more to the system.

The largest pension contribution, however, comes from investment income. Eighty-six percent, or 86 cents of every pension dollar paid out through TRS, comes from investment income; investment returns account for 84 percent of ERS assets. This speaks volumes about the systems' stability.

"Our commitment to longterm, value investing through our diversified portfolio has kept the fund secure and well positioned to benefit from the market's continued recovery," State Comptroller Tom DiNapoli noted in his most recent ERS quarterly report.

Research shows that traditional pensions — compared with plans that rely on individuals to make investment decisions themselves — cost less to operate and contribute income back into the state and local economy. An NIRS study found traditional defined-benefit pension plans operate at nearly half the cost of 401(k) type plans. These large plans can invest more aggressively over longer time periods, traditionally achieving higher investment returns than individual accounts.

Consider too, that 401(k) and 403(b) plans were not created to replace pension plans but to supplement them. In fact, the average balance of a current individual 401(k) plan is about $45,000; 43 percent of Americans with 401(k) accounts have less than $10,000 in them.

While public workers are hardly getting rich from pensions — NIRS reports show the average New York state pension benefit is $24,263 — once they do retire, they typically stay put, pouring those funds back into the state's economy.

NIRS data show retiree expenditures support more than 136,000 jobs in the state. And of the $5 billion in TRS pension payments made in 2009, more than $4 billion went to retirees living in the state who pay taxes and shop at local businesses.

While public pensions make headlines, conservatives and anti-union groups are succeeding at drawing attention away from the destruction of private-sector pensions.

Since 2005, more than 130 private employers, including The Associated Press, Kraft Foods and nearly a dozen National Football League teams, have made significant reductions to their defined-benefit plans, according to the Washington-based Pension Rights Center.

In 2009 alone, the Pension Benefit Guaranty Corp. (PBGC) took over 129 private-sector plans — a 74 percent increase from 2008. To meet obligations promised by corporations, the federal agency now has a more than $20 billion deficit, a cost which could fall on taxpayers.

When United Airlines entered bankruptcy and terminated its pension plans in 2005, thousands of employees lost benefits in the shift to the government-run plan. A year later, when the company emerged from bankruptcy, it awarded its CEO and other top-level executives millions of dollars in bonuses and stock options.

Frank Bartolotti, a 27-year employee of auto-parts supplier Delphi, "got out just in the nick of time," said his wife, Margaret, a retired teacher and president of the Webster Teachers Association near Rochester. Frank retired under the General Motors plan shortly before it was taken over by the PBGC. Although he wasn't able to collect his modest pension until three years after leaving, many colleagues with more time in now receive reduced benefits under the PBGC-run plan. Thankfully, the Bartolotti's are buffered by the security offered by Margaret's teacher pension.

NYSUT's Iannuzzi said the labor movement has always fought for basic human rights for union members and every worker.

"Pensions are no different. Every worker deserves a dignified retirement. And while pitting public and private against each other may be politically convenient, it's dishonest," he said.

"The current and future stability of New York depends on this vital piece of the safety net for all workers, private sector or public sector, unionized or not."