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Civic Report
No. 40 November 2003


Defusing the Pension Bomb: How to Curb Public Retirement Costs in New York State

Appendix A: New York’s Public Pension Systems

Here is a list of the public pension systems in New York State and a description of their primary membership:
 
New York State & Local Employees Retirement System
All employees—in occupations other than police officers, firefighters and educators—on the payrolls of the state and of local governments outside New York City

New York State & Local Police and Fire Retirement System
Police officers and firefighters employed by the state and by local governments outside New York City

New York State Teachers Retirement System (TRS)
Teachers and other education professionals employed by school districts outside New York City

New York City Employees Retirement System
City employees other than those employed by the police, fire and education departments

New York City Teachers’ Retirement System
Education professionals employed in the city’s public schools

New York City Board of Education Retirement System
Civil service workers and other non-education professionals in the city education department

New York City Police Department Pension Fund
City police officers

New York City Police Department Pension Fund
City firefighters

Appendix B: How Generous Are New York’s Public Pensions?

New York’s benefit levels and eligibility guidelines are not atypical for the public sector. Some states offer earlier retirement ages or larger benefits than New York for some occupations—but such largess is often accompanied by the requirement that employers and employees contribute much more to their retirement systems.

Two recent nationwide reviews of public retirement systems showed that New York’s employee share of pension contributions is relatively low compared to requirements in most jurisdictions:

  • Of the 85 state and local government retirement systems included in a nationwide survey conducted for the Wisconsin Legislature in 2000[42], only 18 had mandatory employee contribution rates lower than the maximum 3 percent required of most New York public employees during their first 10 years on the job. Only 11 pension plans required no contribution from some or all employees, as is now the case in New York.
  • Only four of the 34 states with pension systems most comparable to that of New York required no pension contribution from employees as of 1999, according to the U.S. General Accounting Office[43]. Among states in this group requiring a member contribution, only five were below the current New York maximum of 3 percent.

Private counterparts

As noted on pages 5–6 of the main report, few private employers offer any guaranteed pension. In fact, even among the shrinking number of companies offering defined-benefit pensions, few rival the package available to career public employees in New York.

  • General Electric, for example, offers workers a DB pension roughly half the size of the New York government plan, combined with a defined-contribution savings account. IBM also offers a package of DB and DC retirement benefits, although it is in the process of converting its traditional DB plan into a cash balance plan.
  • Members of the United Auto Workers are famous for their high hourly earnings and big pensions—but after age 62, their retirement benefits are reduced by the amount of Social Security they receive. New York government retirees, by contrast, are entitled to full Social Security benefits in addition to their full pensions.
  • Microsoft, the quintessential high-tech growth company, offers no DB pension at all—just a 401(k) plan, plus the option to purchase company stock at 85 percent of market value.[44]

Other comparisons

Because there are literally tens of thousands of different privately administered pension plans offering seemingly endless permutations of benefits and eligibility standards, it is difficult to conjure an “average” private plan for comparison with public pensions. In the absence of such data, one measure of how New York’s DB pension compares to private plans is a 1999 Congressional Budget Office (CBO) report focusing on the federal government’s pension plans for civilian employees.

Even among a select group of larger employers offering more generous retirement benefits, including guaranteed pensions, the CBO said only 15 percent allowed retirement with a full pension at age 55 after 30 years of service, which is permitted in Tier III and IV of the New York system.[45] In this same group, less than one private employer in ten provided for any kind of regular post-retirement inflation increase, such as the one extended to New York public employees in 2000.

Consistent with the CBO analysis, Census Bureau data indicate the average state and local government retirement payment in New York as of 2002 was $20,057 per person, compared to an average company or union pension of $11,949.[46]

 


Center for Civic Innovation.

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CR 40 PDF (155 kb)

SUMMARY:
Skyrocketing employee pension costs have been a major factor in the fiscal crisis affecting every level of government in New York State. The defined benefit (DB) pension plans used by governments guarantee employees a fixed percentage of retirement income based on their peak salaries and career longevity. This requires those governments to invest money each year to cover future pension payments. As a result, the DB system is crisis prone because earnings during bull markets cover employer contributions, while losses during bear markets force governments to drastically increase contributions. This study shows how greater fairness for taxpayers and better retirement benefits for most government employees can be achieved by switching from the current DB pension plan to the defined contribution (DC) model used by the vast majority of private companies.

TABLE OF CONTENTS:

Executive Summary

About the Authors

INTRODUCTION

PENSION INSTABILITY = HIGHER TAXES

Figure 1. Falling Revenues, Rising Costs

Figure 2. Heading Off the Charts

The problem with public pension plans

The right solution

The financial plus for taxpayers

PUBLIC PENSIONS IN NEW YORK

Trail of “tiers”

Carving out special benefits

Police and fire

Pensions as a security blanket

PUBLIC AND PRIVATE PENSION TRENDS

Michigan leads the way

Florida Follows Suit

Federal pension reform

Higher education precedent

COMPARING THE PENSION ALTERNATIVES

Early-career workers

Investment and Return Assumptions

Dramatic differences

Figure 3. Annual Retirement Benefits for Early-Career State Workers

Long-term workers

Figure 4. Annual Retirement Benefits for Career State Workers

Pension bias

REAL PENSION REFORM FOR NEW YORK

Advantages for Workers

Advantages for Employers and Taxpayers

Criticisms of DC Plans

Special Issues

Fairness

Costly return to the “norm”

APPENDIX A: NEW YORK’S PUBLIC PENSION SYSTEMS

APPENDIX B: HOW GENEROUS ARE NEW YORK’S PUBLIC PENSIONS?

ENDNOTES

 


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