Today’s “DRP Did You Know” from Governor Paterson’s office says the governor’s proposed pension changes for new newly hired employees will save $60 billion over 30 years. But here’s the missing perspective: for state government, the modest changes proposed by Paterson would ultimately—i.e., over a decade from now—represent a roughly 23 percent annual reduction* in a pension bill that is poised to increase by 155 percent in just the next three years.
The problem with Tier 5 is that, while it would shave away the most costly sweeteners added to Tier 4 since the early 1990s, it would preserve the basic defined benefit (DB) plan, which represents a massive and growing financial risk for taxpayers while offering needlessly generous benefits to workers. A better solution would be a mandated version of the kind of defined-contribution plan already chosen voluntarily by most employees of SUNY.
* The March 2009 background memo on the governor’s proposal says the pension contribution for Tier 5 members of the state Employees’ Retirement System (ERS) would be 2.5 percentage points lower than that of existing employees. The “normal” cost for current new entrants to the Tier 4 system–not what the state actually pays, but what it would pay in a hypothetically “smoothed” universe where the retirement fund precisely hit its investment return target of 8 percent every year–has been estimated at about 11 percent of salary.