The Wall Street Journal and Albany Times Union both report today that Governor Andrew Cuomo’s proposed public pension changes may include an optional defined-contribution retirement plan. (See Update below.)
This would certainly put a better face on the otherwise disappointing set of proposed changes outlined in yesterday’s apparently orchestrated news leaks by the governor’s office. As summarized in an Associated Press account that first surfaced Monday morning, Cuomo’s “Tier 6” would reduce various aspects of the traditional defined benefit pension for new hires — raising the retirement age and the employee contribution, removing the bonus benefit “multiplier” for longer-term workers, increasing the minimum vesting period, and eliminating overtime from calculations. Such changes would reduce what actuaries term the “expected normal cost” to taxpayers of pensions for future workers, but it would not eliminate the open-ended financial risk, volatility and unpredictability inherent in a pure DB plan.
Neither the Journal nor the Times Union hinted at any details on the possible DC plan design or contribution levels. The Times Union does include this passage:
An analysis of pension benefits performed by the administration, obtained by the Times Union, showed the state could realize $60 billion in savings over 30 years from a defined contribution plan, but revising the defined benefit plan could yield $93 billion in savings.
Huh? A DB plan couldn’t produce more “savings” than a DC plan unless the employer contribution is higher than the so-called “expected, normal rate” associated with the DB plan. Indeed, any presumption of “savings” from a DB plan, especially in comparison with a DC plan, also has to be based on favorable assumptions about the rate of return on assets in the pension fund — which, of course, cannot actually be predicted with any certainty.
Cuomo, speaking in Long Island on Monday, said he’d send the Legislature a pension bill “in a matter of days,” but would not discuss further details.
UPDATE: The initial posting here overlooked a Daily News article reporting:
A version circulated by Team Cuomo last week called for an option of 401(k) plans for future elected officials and political appointments, sources said.
The provision since has been stripped from the latest version.
“Maybe he knew they’d never get it,” said one source who saw the original proposal.
Cuomo’s spokesman Josh Vlasto said talks are continuing.
“Talks” with whom? Vlasto must be referring to state labor unions, which are now in contract negotiations, since the Legislature professes to be in the dark on Cuomo’s proposal. However, the state Taylor Law specifically prohibits bargaining of pension issues. Pension changes pre-cleared by unions are highly unlikely to include meaningful reforms; rather, “talks” will produce something much more like the meek Tier 5 plan signed by Governor Paterson in December 2009.