Let's defend our pensions.

In a recent post, I gave details of Gov. Cuomo's proposed "Tier 6" pension "reform." If you are unfamiliar with this proposal, click here for the details.

In the coming days, columnists, editorial and letter writers will wax poetic about what a wonderful, cost-saving "fix" this will be for the current "unsustainable" public employee pension system. Whether you're talking with that "know-it-all" neighbor or relative, picking up your pen to respond to a letter in the paper or calling a radio talk show, it helps to have the facts close at hand. Here are the facts:

Our pensions are not outsized.

• The average pension for members of the state and local employees' retirement system is about $19,000/year. For the NYS Teachers' Retirement System, the average pension is around $39,000/year.
• 76% of pensions are less than $30,000/year.
• Those receiving the large pensions so often in the news are overwhelmingly high-level management and political appointees.

Public employees contribute to their pensions.

• 86% of pension plan income comes from earnings on pension investments. 14% comes from employer and employee contributions. 
• Unlike members of most private sector retirement plans, most of New York's public workers pay taxes on the contributions they make to their pensions.
• By the way, even though public employee pensions are exempt from NYS taxes, private sector pensions are also exempt up to $20,000/year as are Social Security benefits.

Public employees do NOT earn more than their private sector counterparts.

• While it is true that the "average" public sector worker earns more than the "average" private sector worker, it is also true that the average diner is a multi-millionaire in any restaurant Bill Gates walks into. We need to compare apples to apples, and the "basket" of public sector workers is very different than the basket of private sector workers.
• We expect people who have invested their time and money in advanced education and training to earn more than those with lower educational levels. Many more public sector jobs require college or professional degrees. When comparing public and private sector workers with the same educational levels, public sector workers earn 7-10% less than their private sector equivalents, even when both wages and benefits are factored in. (Want proof? See the 6-part blog post beginning with Let's lay this myth to rest once and for all!.)

Public employees have sacrificed.

• In 2010, public employee retirement benefits were reduced under "Tier 5." These reductions--already in effect--will save NY taxpayers $35 billion over the next 30 years.
• State employees have negotiated new contracts that include wage freezes, pay lags, dramatic increases in healthcare premiums, unpaid furloughs and other wage and benefit reductions, saving millions in tax dollars.
• Local government and school district employees have taken the same freezes and reductions as their state employee counterparts to reduce local taxes; many even voluntarily reopened their contracts to agree to these cutbacks in an effort to avoid layoffs.
• Despite these sacrifices, thousands of teachers, nurses, police officers and fire fighters across the state are standing in the same unemployment lines as private sector workers.

401(k) plans were never meant to replace traditional pensions.

• Time Magazine ran a 2009 cover story titled "Why it's time to retire the 401(k)." In the story, they said "...the 401(k) was never meant to replace the employer-guaranteed pension fund, supplemented by Social Security, as the cornerstone of our nation's retirement system."
• The National Institute for Retirement Security recently stated that "the embedded economic efficiencies of defined benefit (i.e. traditional pension) plans make them nearly half the cost of defined contribution (i.e. 401k-type) plans."
• NIRS continues: "To prove the point, an example was cited of a 62-year-old with a target retirement benefit of $26,684. Under the DB [traditional pension] plan, annual contributions of 12.5% of payroll would be required and $355,000 would need to be set aside by age 62. In contrast, the DC [401(k)] plan would require annual contributions of 22.9% of payroll and $550,000 would need to be set aside by age 62. As stated in the report, "The DB plan can do more with less, providing the same benefit for nearly $200,000 less per participant."
• Again from NIRS: "Here's how: DC [401(k)] plans are individual focused and, in order to ensure she/he does not outlive retirement savings, the individual must save enough to live to a very old age — typically 95 to 100. By contrast, a DB [traditional pension] plan pools the contributions of many people, with a goal of saving enough for an average life expectancy for each member of the plan. An average life expectancy, which actuaries calculate with a high degree of accuracy, is much lower than 95 to 100— meaning it is necessary to set aside significantly less per DB plan member."
• For more, see the post titled "What's so bad about 401(k)-type plans?"

New York's pension system is strong.

• Unlike other states which skipped a few required payments to their pension funds, New York has a fully-funded pension plan. Every required payment has been made. There are no unfunded liabilities hiding in a closet.
• The Pew Center issued a report two year ago calling New York one of the best-managed pension funds in the country.
• Wall Street greed and fraud caused the collapse of the stock market in 2008-2009. This has caused a temporary "uptick" in required employer contributions. (The employer contribution is calculated using a five-year rolling average of investment performance.) Stocks have done well since 2009 and it is reasonable to expect that the employer contribution rate will begin to decline, not continue to shoot up to unsustainable levels.

Tier 6 hurts all workers.

• Although the plan would apply to new public employees, current public employees and retirees will be harmed as the current traditional pension system would be undermined by fewer new members. The larger the pool, the greater the ability to diversify and share risk.
• Private sector employers who have maintained traditional pension plans will use the state's example as an excuse to terminate their own plans.

(Thanks to the NYS AFL-CIO for some of the above.)