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The New York Times


Can States Fix Their Pension Problems?

May 20, 2010

By E. J. McMahon

Stop the Bleeding

New York’s latest stab at pension reform, which created a new “tier” of slightly reduced benefits, was an enormous missed opportunity. While the plan shaved away a few of the most costly sweeteners added to pension benefits since the early 1990s, it preserved the basic defined benefit plan structure. This is the core of the problem: a huge and growing financial risk for current and future taxpayers.

That risk is likely to be compounded by the next state budget. Gov. David Paterson and legislative majorities apparently have agreed to cap rising pension bills by “amortizing” them, which essentially means borrowing $2.5 billion from the pension fund in the next four years alone. Of course, this won’t reduce costs — it will merely push them into the future. Meanwhile, as documented in this recent Manhattan Institute report, public pension obligations are grossly understated to begin with.

Unfortunately, there is no way to reverse the pension cost spiral in the short term. The state Constitution is generally interpreted as locking in all current employees’ retirement benefits — even those not yet earned.

But this should not be an excuse for paralysis. The first order of business should be to stop the bleeding — by closing existing defined-benefit pension plans to new entrants and enrolling newly hired general employees in defined-contribution plans. A ready-made model is the Optional Retirement Program favored by employees of the State University of New York.

Republicans and Democrats alike in Albany have long treated fundamental pension reform as a political third rail. But there is at least one tiny crack in the wall of fear. State Assemblyman Jack Quinn, a Buffalo-area Republican running for state Senate, just unveiled the most far-reaching and comprehensive pension reform proposal we’ve seen from any member of the New York Legislature in decades. Mr. Quinn’s plan represents the kind of approach New York needs — before it’s too late.

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