A prolonged stock market rise is finally providing New York municipalities some much-needed relief from their employee pension obligations. State Comptroller Thomas DiNapoli announced this past week that pension costs will drop by more than 9 percent for government workers and 11 percent for police and fire pensions. In Broome County alone, the savings from the decline the pension contributions amount to an estimated $500,000 for its nearly 2,000 employees.
In recent years, there have been moves to place more of the pension burden on public workers as the costs have become more burdensome. Recently hired employees are enrolled in the so-called “Tier 6” program have had to contribute more of their own earnings into the pension program. That will eventually lower pension costs, but so many are covered by the more lucrative defined benefit pension program that it will take years for the lower contribution rates to be realized as significant savings for the various municipalities across the state.
Traditional defined benefit contribution plans that pay benefits based on income earned are becoming an anachronism. Defined contributions plans, in which the employee, not the employer — or in the case of a municipality, the taxpayer — assumes the investment risk, are now the dominant retirement plan in the private sector.
In 1998, traditional pension plans were the norm among private employers. The shift away from defined benefit plans since then has been dramatic. Last year, the Bureau of Labor Statistics estimated that only 13 percent of the non-union private-sector worker were covered by a defined benefit plans.
Public employee unions, naturally, are staunch defenders of the old-fashioned defined benefit plans. But as E.J. McMahon noted in 2012 testimony before a joint legislative fiscal committee: “The current public pension system in New York, as in most other states, exposes taxpayers to intolerable levels of financial risk and volatility.”
Knowing that legislators, under pressure from the unions, would be reluctant to do away totally with a defined benefit plan, McMahon suggested a hybrid offering a minimal “safety net” defined benefit plan and a defined contribution account, much like a 401(k) plan.
McMahon predicts that when the market turns down again, which it eventually will, taxpayers will be left holding the bag again and be expected to make up the funding shortfalls.
It is time for government employees to get in step with the rest of the nation’s workforce and become responsible for managing their own retirement rather than having taxpayers continuing to foot an increasingly burdensome bill.
© 2014 Binghamton Press & Sun-Bulletin