As public pension costs continue to rise, straining municipal budgets to the breaking point, New York City Comptroller John Liu has emerged as a stalwart defender of the status quo.  Liu doesn’t deny that tax-funded pension costs are exploding; instead, he says the traditional defined-benefit system offers “a better bang for the buck.” Nicole Gelinas analyzes the comptroller’s latest report on the subject in today’s New York Post.

As Nicole summarizes it, Liu’s argument is grounded in the less-than-earthshaking insight that bulk purchasing (or, in this case, bulk investing) reduces unit costs.

So, fine: The report proudly notes that “for any given level of benefit,” a traditional pension plan will cost less than a private-style 401(k) plan, which offers no taxpayer guarantee. But that tells you nothing about whether New York needs to offer today’s “given level” of benefits — or whether taxpayers can afford it, as pension costs suck up 20 percent of tax dollars.

Liu’s researchers find, for example, that in the private sector, a person who wanted to retire at age 51 on a $43,515 annual pension would have to rack up a $1.1 million nest egg. In the public sector, a police officer who retires at that age needs $769,299 — a 28 percent savings.

But the city taxpayer would save even more if the officer had to work five years longer, if he had to contribute more to his own pension or if the pension didn’t include goodies like overtime, which drive up costs. Over time, the savings from such would be hundreds of millions, even billions, each year.

Liu also claims that public-pension funds are a better deal because they can take much more risk in pursuit of higher profits. But he all but ignores the fact that when pension returns fall short, it’s the taxpayer who must make up the difference.

Skyrocketing pension costs have wreaked havoc with the city’s budget; they’re the driving force behind budget cuts, including fewer police officers to deal with more protests and gunplay alike. Yet Liu’s report merely says that concerns about higher taxpayer costs are “legitimate” — and that’s it.

In other words, the “volume discount” aspect of public pension funding actually compounds the financial risks for today’s taxpayers, who must stand behind the constitutional guarantee of past, present and future benefits.   Pension reform isn’t simply about reducing costs — it’s about reducing and realigning those risks.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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