New York’s state and local governments offer the nation’s second highest “pension replacement rate” — the percentage of preretirement income covered by an employee’s pension — according to a new study cited in today’s New York Times.

New York Times graphic

The study is part of a broader report by Mary Williams Walsh on the increasing pension cost pressures faced by states. She reports that the pension replacement rate study by Sylvester J. Schieber, an economist and independent consultant, does not find a correlation between the generosity of pension benefits and union density in the public sector.

While Wisconsin’s public employees will now be forced to contribute more to their pensions, “other states will also probably find that Wisconsin’s idea of simply dividing pension contributions between labor and management is an illusory solution to their long-term financial woes,” Ms. Walsh reports. “That’s because several studies have shown that promises to workers are far more costly than routinely calculated by Wisconsin and most states.”

Colorado’s public retirement systems ranked first in Schieber’s study, with a pension replacement rate of 90.4 percent, while New York was second at 77 percent — although Colorado, unlike New York, has granted collective bargaining privileges to only one-quarter of its public-sector workers.  Ranked right behind New York was Georgia, a right-to-work state with a very low rate of public sector unionization.

The lack of a strong union correlation should not be all that surprising, actually, since the basic structure of public pension benefits in many cases pre-dates the granting of collective bargaining privileges between the late 1950s and 1970s.

And, as the Times notes:

… Colorado’s pensions are unusually rich because its public workers are not permitted to participate in Social Security — the state pension is the only one they get.

The second-richest state is New York, which replaces 77 percent of a worker’s income, even though New York’s public work force earns Social Security benefits as well. A New Yorker’s public pension benefit, combined with Social Security, replaces more than 100 percent of his pay, Mr. Schieber found.

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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