NYC's Public-Pension Rip-Off
AS Mayor Bloomberg and Gov. Paterson ask for mod est reforms to public-sec tor pension benefits for new workers, labor unions have stuck to one argument: The private sector -- Wall Streeters -- got their millions over the last decade. So why shouldn't working-class public-sector workers get a little something, too?
But while middle-class private-sector taxpayers got nowhere near Wall Street's payouts, the city's public sector has been amassing guaranteed million-dollar bank accounts. It's time to see what these "accounts" -- guaranteed retirement benefits -- are really worth. Then we can have a reasonable discussion about what's fair.
New York City public-sector workers have an assurance that's no longer even remotely available in the private sector: retiring at a relatively young age with a guaranteed annual income for life. In the private sector, if you want to retire well, you've got to save up the money to do so. How much would you have to save to retire like a Gotham public servant?
Let's say you want to retire pretty early -- just as public-sector workers can do at 55 (and younger for uniformed workers, who often do so in their mid-40s). You hope to live for 30 years after retirement -- so you'd need to amass enough money to support yourself for that long.
Say you'd like to make $72,944 annually in your retirement -- the average annual pension benefit for a recently retired New York City firefighter (including officers), the Citizens Budget Commission reports.
You'd have to save up lots of money before retirement to get such a payment, because you've got to keep up with inflation after you're retired. Plus, you don't want to take much risk with your investments. You're not planning to put all of your money in the stock market, for example. You figure that you'd like to take just enough risk to earn a return of 5 percent annually through your retirement.
To earn an average of $72,944 annually, plus inflation, in retirement under these assumptions, you'd need to amass a retirement-day nest egg, in today's dollars, of $1.5 million.
If you'd be satisfied with $56,617 a year -- the average benefit for a recently retired police officer -- you'd need $1.2 million in the bank. If you'd like to retire and live on $54,931 annually -- what recently retired teachers can expect -- you'd need roughly the same.
To get an average annual benefit of $30,098 -- that of a transit worker and civilian city jobs -- you'd need more than $635,000 in the bank.
Firefighters and police officers, too, take in an extra $12,000 annually via a "holiday" bonus. To assure yourself of such a bonus, you'd need another $250,000 in savings.
How do these figures stack up against what the average private-sector worker has actually saved?
According to the Employee Benefit Research Institute, in 2007, a longtime worker in his 50s earning $60,000 to $80,000 a year (about the average pay, without benefits, of a public-sector city worker) had a median balance in his private retirement-savings account of about $160,324. A worker earning $80,000 to $100,000 -- closer to what uniformed workers make -- had a balance of $226,266.
Workers earning $100,000 or more had a median balance of $344,526. (These numbers don't take into account the last year's turmoil in the market.)
Of course, some workers, especially older ones, have other sources of private-retirement income, including old-fashioned pensions, like public-sector workers get.
But few workers in their 40s can count on traditional pensions. The average worker in his 40s, responsible for his own retirement and earning $60,000 to $80,000, had a balance in his private retirement account of $133,488, as per the institute's figures.
For those earning $80,000 to $100,000, the balance was $194,832. Those earning $100,000 or more had $280,624 -- nowhere near enough to retire on at that age.
But that's exactly what New York firefighters and police officers often do.
For a private-sector worker to match them -- and expect to have enough to live for, say, 40 years in retirement -- he'd need $1.9 million in the bank.
Most private-sector workers must save up much of this money themselves. While sometimes their employers make matching contributions, the workers themselves always take all the risk.
In New York, by contrast, as the CBC notes, "the city contributes nine times as much as employees contribute to their pension funds." And the only risk the workers face is that the city will go bankrupt (a risk that, by the way, is growing bigger).
As the above calculations show, public-sector benefits are worth a tremendous amount -- especially relative to what middle-class private-sector workers can expect to enjoy.
It's time for the city's middle-class private-sector taxpayers to understand what they're funding -- not just in higher taxes but also in cuts in library hours or picking up the trash.
Armed with these numbers, private-sector taxpayers would likely support the mayor in asking future city workers to pay more, through higher contributions, and get less, through a higher retirement age and lower guaranteed benefits.
If the union won't cooperate, the governor and Legislature can unilaterally pass a law -- again, with the general public's support.
Original Source: http://www.nypost.com/seven/04282009/postopinion/opedcolumnists/million_dollar_babies_166508.htm