Unless Changes are Made NY State Pension Costs Will Continue to Soar
Submitted by JDKJJK on Fri, 09/18/2009 - 1:48pm
According to the Journal News, New York State Comptroller, Thomas Dinapoli, plans to announce that huge Pension shortfalls await local budgets in the near future and Local contributions to the Pension fund will increase 50% by 2011.
Pension costs have always been the elephant in the room and we can thank our elected officials for some of these problems. One would think that after years of reading about the pension and benefit problems of the domestic automobile manufacturers our elected officials would have exercised some degree of fiscal restraint even in the best of times.
However, they did not, and the sad fact is that the United Automobile Workers Pension and Benefit package pales in comparison to the Pensions and Benefit packages of many New York State and Local employees. In addition, the automobile manufacturers, through bankruptcy, can shed the cost of their pension obligations and pass them along to the Pension Benefit Guaranty Corporation[1]. New York State does not have this option; the increased costs will be passed along to the taxpayer.
During the fiscal crisis of the 1970’s the State took measures to rein in the cost of pension benefits. One of these measures resulted in the creation of the Tier III Pension Plan. The Tier III Pension Benefit Plan was a good place to start since one of the provisions called for the reduction in State pension obligations of up to 50% of an individuals Social Security annuity. The plan was set up in such a manner that the 50% reduction only applied to social security earnings while in the State’s employ.
However, Union Greed and our Elected Officials’ penchant for buying votes by rewarding municipal employees during the good times, without any consideration for future shortfalls, allowed for the introduction of the Tier IV Pension Plan. The Tier Four plan essentially eliminated any of the savings gained through the implementation of the Tier III Pension Plan. In addition, Teacher's covered under Tier III-Pension Plan can opt for the Tier IV Plan.
However, the problems caused by the Teachers pension benefit plans pale in comparison to the pension benefit plans for Police and Firefighters. Police and Firefighters receive full pensions after 20 years of service. A full pension for Police and Firefighters is defined as fifty percent of their Final Average Salary. The Final Average Salary is determined by the salary earned during the previous 12 months or the highest average salary earned during any 36 months period. The pension payout is based on the higher of the two calculations. The Final Average salary includes overtime worked, compensatory overtime, longevity bonuses, and Holiday pay. With the inclusion of overtime and other compensation, the ultimate annuity for Police and Firefighters can easily exceed their base pay. The NY Department of State has additional information on NY State Pension Plans; for further information click here.
Proponents of the current system will invariably argue that our Police and Firefighters put their lives on the line every day and deserve a just pension. This is true, but our enlisted men and women also put their lives on the line every day and the top benefit they can expect after 20 years of service is approximately 30K per year.
What is more astounding about the current pension plans for police and firefighters is that in early June the current pension plan came up for renewal as it has every two years since 1981. Obviously, the current plan has been renewed every two years since 1981 and our fiscally clueless legislation voted to continue this trend. Amazingly, given the current Fiscal Crisis, the Senate voted 58-0 and the Assembly voted 136-6 to keep the current pension structure in place. It should be noted that both Sandy Galef and Greg Ball voted to approve the measure.
As a remedy for the fiscally irresponsible behavior of our elected officials, the Governor vetoed the aforementioned plan and proposed a new Tier Five system. The status of the Tier V pension proposal for all New York State employees is not clear at this time. However, what is clear is that the Tier Five proposal does not include the Teachers, Firefighters, and Police Officers.
Additionally even if the Governor’s proposed Tier Five Plan was enacted, it would not have any effect on the pending pension budget shortfalls. The reason, New York State Public Employee Pension benefits for current employees are protected by the New York State Constitution; Tier V would only apply to future hires.
I realize, given the spineless nature of our elected officials, that a change to the New York Constitution is not feasible, but that is exactly what is needed to rein in future State expenditures.
[1] Pension Benefit Guaranty Corporation is a Federal Program designed to be funded by Corporate Fees.
The benefit in a defined
The benefit in a defined benefit pension plan is determined by a formula that can incorporate the employee's pay, years of employment,HP2-T11 age at retirement, and other factors. A simple example is a Dollars Times Service plan design that provides a certain amount per month based on the time an employee works for a company. For example,70-443 a plan offering $100 a month per year of service would provide $3,000 per month to a retiree with 30 years of service. While this type of plan is popular among unionized workers, Final Average Pay (FAP) remains the most common type of defined benefit plan offered in the United States. In FAP plans, the average salary over the final years of an employee's career determines the benefit amount.Averaging salary over a number of years means that the calculation is averaging different dollars. For example, if salary is averaged over five years, and retirement is in 2009, then salary in 2004 in 2004 dollars is averaged with salary in 2005 dollars, etc, with 2004 dollars being worth more than the dollars of succeeding years. The pension is then paid in first year of retirment dollars,JN0-570 in this example 2009 dollars, with the lowest value of any dollars in the calculation. Thus inflation in the salary averaging years has a considerable impact on purchasing power and cost, both being reduced equally by inflation.