In one corner, there’s New York Gov. Andrew Cuomo. In the other corner, there’s New York State Comptroller Thomas DiNapoli. In the middle? The working- and middle-class New Yorkers whose futures lie in the hands of their elected officials.
On Monday, Cuomo continued to make his push for pension reform in Albany. Cuomo wants to cut pension costs by converting to a 401(k)-style system in which public employees would invest more and the state would contribute half of its share. DiNapoli said that his analysis proved that such a system would be dangerous for New York’s public sector employees. Regardless, Cuomo said he’d make sure the citizens of New York State would know the names of each legislative official who opposed his idea.
“The unions weren’t elected by the people of this state,” Cuomo said this week. “The Assembly members were. The senators were. And those are the ones I’m going to hold accountable. For a legislator to say, ‘I’ll only do it if the unions tell me it’s OK–how about the people who elected you? How about the citizens? How about the taxpayers, as opposed to just the [political campaign] donors?”
The Senate’s Republican majority and the Assembly’s Democratic majority have said they support some of Cuomo’s proposal. They have yet to offer an alternative, which is expected on March 12, when the majorities release their proposed state budgets. Cuomo and Senate Majority Leader Dean Skelos and Assembly Speaker Sheldon Silver will try to negotiate a 2012-2013 state budget before the April 1 deadline. Legislature leaders have said an agreement could be reached a week earlier than that.
At the state conference of mayors, DiNapoli said he supported the idea of a 401(k)-style defined-contribution plan, as long as it stayed in tandem with a defined-benefit plan like the state currently uses. Defined-benefit plans pay retirees a guaranteed annual rate based on their final average salary and years of service.
After the speech, DiNapoli told reporters, “To me, it’s the most troubling part of the proposal. I think taking [the defined-contribution option] off the table would certainly make a lot of sense from my point of view.” New York State United Teachers spokesperson Carl Korn agrees,
“His proposal to provide a 401(k) option is dangerous because every study shows that a 401(k)-style retirement plan is not sustainable for the vast majority of middle-class workers,” said Korn. “They wouldn’t be able to put enough into their 401(k) for retirement, and it would be an even greater burden on taxpayers. 401(k) accounts were designed to be supplements to pensions and to be a side dish, not the main course.
Back in late October, New York City Comptroller John Liu announced a proposal that would change how the city handles pensions for public employees. Liu wants to turn over investment management of city pension funds to a nonpolitical board of financial professionals. The five pension boards are currently appointed by elected officials and the unions themselves. Liu’s plan, through consolidation, would eliminate much of the say unions have in their investments.
The five pensions that the comptroller oversees are the New York City Employees Retirement System, the Teachers Retirement System of the City of New York, the New York City Fire Department Pension Fund, the Board of Education Retirement System of the City of New York and the New York Police Pension Fund.
However, among all of the political football stands the public employees and unions themselves. Korn said the unions aren’t the problem and that the pension reform pushed by Cuomo is a continuation of the war on the middle class.
“If you go back over the past 15 years, public employees have been putting 3 percent of their pay into the system while the employer has put in an average of 4.2 percent,” said Korn. “Two years ago, the legislator presented a Tier 5 pension reform bill that [then Gov.] David Paterson said would save New York taxpayers $35 billion. To come back two years later with another proposal that would strip away retirement security for middle-class workers, for public servants who are often making less than what the private sector pays similar workers–with the same level of experience and education–is insulting.
“The typical employee pension is about $19,000 a year,” continued Korn. “One-tenth of 1 percent of public pensions are six figures. Those tend to be higher-ranked officials like superintendents, not bus drivers. New York’s public sector systems are strong and adequately funded. The only thing that’s changed is that the 2008 stock market crash caused actuaries to increase what employers have to pay towards pensions.”
Korn also told the AmNews that during a six-year stretch from 1997 to 2003, teachers were putting in 3 percent of their pay into pensions and taxpayers were paying 1 percent or less.
“Where were the critics of this exact same pension plan when employees were putting in more?” asked Korn. “The wealthiest New Yorkers, who don’t need pensions, are the ones funding this effort to strip the funding of middle-class workers.”
Korn also said that pensions being funded by taxpayers are a myth, and that the reality is that over half of the total pension fund is gained through investments, not taxpayer money.
Another thing that has been lost among the debate is how pension reform would disproportionately affect Blacks and Latinos, who make up a significant chunk of the public labor force. However, it wasn’t always this way. Tier 1 through Tier 3 pension plans were put together back when the majority of New York State’s public sector workers were white. According to a spokesperson for DC 37, the largest public union in New York City, Tier 4 was when the idea of pension reform really started kicking in…right when the color of most public employees had changed. “The economic disparity is unconscionable,” the spokesperson said.
Public pensions, especially for those who stay in New York after retirement, also contribute to the state’s economy. According to a study by the National Institute for Retirement Security, for every dollar invested in pensions by taxpayers, $10 in total economic activity occurs. In 2009, according to Korn, the teacher retirement system paid out over $5 billion in benefits to retired teachers, and most of that money was paid to retirees who lived in New York State and spent money in New York State. With money circulating back into local businesses, Korn said it had “a spin-off effect.”
However, that spin-off effect might spin away for New York’s public employees and New Yorkers, period.
