Gov. David Paterson wants to reduce New York state’s scary, and ever-rising, pension costs by creating another tier, Tier V, where new employees would have to contribute more toward their retirement and work longer for it. That’s better than nothing, but not enough. Private industry, and other states, are switching from the old guaranteed defined-benefit plan to defined-contribution plans like 401(k)s. It’s the best way to keep providing pensions to employees while being fair to taxpayers.
Right now the balance is all in favor of public employees. State and local taxpayers are reeling under the burden of paying them sweet, lifetime pensions — which, thanks to a spineless state Legislature thoroughly beholden to the unions, become sweeter all the time. That’s how you get 55-year-olds retiring at half pay after 30 years of working, or people like 60-year-old Steve Raucci, the Schenectady school district employee now in jail on charges of terrorism, receiving more than 50 percent of his inflated-with-overtime pay after 34 years. And they will all get more down the road with periodic cost-of-living adjustments. The combination of earlier retirement and greater life expectancy is a deadly one for taxpayers.
Under a defined-contribution plan, the state, local government or school district would put some set percentage of each worker’s pay — say, 5 percent — into a retirement account, with the employee contributing a lesser amount minimum — say, 3 percent. And employees would have to contribute for their entire career, rather than only 10 years as most do now. To encourage workers to save, the employer could also match any additional voluntary employee contribution up to 2 percent.
Even with a 7 percent contribution, state and local governments would save money — more than $1 billion a year, according to Empire Center for New York State Policy Director E.J. McMahon, an expert on the pension system who is pushing such a plan. As for the employee, his pension would now be based on how much is saved and the return on investment over his working life — he could do better, or worse.
But the employer’s cost, unlike now, would be predictable and clearly understandable. No more whopping pension payments from employers when the stock market goes down and the value of the pension fund drops as now — and during a recession, when they can least afford it. No more sweeteners whose costs become evident only later; any changes would be transparent and employers would know the full cost immediately.
Because nothing can be done about pensions for current workers, which are locked in and can’t be diminished, it will take time — 20 to 30 years — to change over the entire public work force to such a system. The time to start is now.