June 11, 2006. Point/counterpoint on public pension policy in the New York Daily News.
No. Municipal workers deserve a decent retirement.
By James A. Parrott, Fiscal Policy Institute
While Mayor Bloomberg is taking a prudent step in establishing a retiree health trust fund, he has taken a wrong turn in seeking to reduce pension benefits for newly hired city workers.
Many large corporations, from United Airlines to Delphi to IBM, have destroyed or diluted the promises they made to their employees about retirement security. Some critics argue that city workers’ pension and health benefits “should now be brought more in line with the private sector.” Hopefully, the city isn’t quite ready to say only the very well-off can do well, and workers just have to do with less.
The Transport Workers stood up against the Metropolitan Transportation Authority when it tried to claim that the workers’ pension plan was busting the agency’s budget. It’s better understood now that Gov. Pataki’s penchant for borrowing created the real threat to MTA budgets. City pension contributions are way up, but that’s mainly because the city reduced its pension contribution during the stock market boom and now has to make up for the 2001-02 decline in pension assets from the market crash and corporate scandals.
Critics say the city no longer has to pay good benefits because the wages of public sector workers are higher than for their private sector counterparts. Even if that were true, it would be because of the 10% drop in private real hourly wages since 1990. However, when adjusted for skill differences, public worker wages are not higher than private wages.
Some argue the city should drop its defined benefit pension plan for new employees and go to a 401(k) plan. For 40 years Nebraska offered public workers a choice between a traditional benefit plan, and a 401(k)-style plan. But the plan did not provide retirees with an adequate retirement income, so Nebraska now puts all new workers in its defined benefit system.
The lifetime pension cost for new city employees is fairly modest. For a teacher it is about 9% of salary; for other civilian workers even less. Retirees are living longer, and that will increase retirement costs. The solution shouldn’t be to make workers work longer. We need a sensible approach, such as the mayor’s retiree health trust fund, that addresses long-term needs, and not a solution that undercuts the modicum of retirement security that public workers maintain.
Yes. Getting rid of excess is sound fiscal planning.
By Charles Brecher, Citizens Budget Commission
Mayor Bloomberg has taken a bold and important step to address the spiraling cost to taxpayers of the pension benefits of the city’s municipal workers. It’s prudent, and also fair, because it would affect only newly hired workers. Nobody now on the payroll would have their benefits reduced.
In the current fiscal year, taxpayers will contribute about $4 billion to the pension funds of municipal workers and pay another $900 million for retiree health insurance. If nothing changes, pension contributions in 2010 will be more than $5.7 billion – exceeding the projected budgets of the Police and Fire departments combined.
These expensive benefits are far more generous than those of workers in the private and public sectors. They were once justified because municipal employees were paid less, but state and local government employees in the New York region now earn more than private-sector workers in most categories. In a 2004 survey, the Bureau of Labor Statistics found that average hourly wages for public employees were 15% above those of private firms; among blue collar workers the advantage was 30%.
The city’s pensions are also out of line with those of other large private and public employers. In the private sector, most employers have converted to so-called defined contribution plans, like 401(k) plans; only one-fourth of private workers have pensions that are defined benefits, usually a guaranteed share of their salary for the rest of their lives.
Defined benefit plans are still common in state and local governments, but New York’s are among the most generous. New York’s benefit formula includes overtime earnings, a practice rare in other systems, and city workers contribute a smaller share to the pension fund than do most others. Also, most New York City employees are eligible to retire at 55, well below the age for full Social Security benefits (rising from 65 to 67 in coming years).
New York should always provide the salaries and benefits needed to attract qualified workers for its crucial services. The mayor’s proposal does not jeopardize that. The city still will be able to recruit a capable workforce, workers will be fairly paid and taxes will be kept from skyrocketing.