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Put Tier VI Pension Plan on the Back Burner!

March 5, 2012
By Alan Lubin, Co-Chair OF BALCONY, The Business and Labor Coalition of New York

New York’s lawmakers are facing tough decisions as they grapple with trying to rein in costs and reduce the state’s ever-growing budget, but agreeing to impose yet another plan to slash pensions for public employees would be a terrible – and unfair – idea.

Public pensions have become the whipping boy of governors and mayors across the country, even though the average pension of the New York State and Local Retirement System is just $19,000 a year, hardly an excessive amount, and even though our state pension systems continue to be among the best-managed in the country.

As the former Executive VP of NYSUT and Co-Chair of the of the Business and Labor Coalition of New York (BALCONY,) I know first-hand that Gov. Andrew Cuomo’s call for the creation of a new tier VI pension plan not only punishes new workers, but ultimately will force most of them to switch from a secure system to one that amounts to a pension gamble.

Employees would have to choose between a decimated defined benefits plan and a 401(k)-style plan that may not provide retirement security. And, directing future payments to a 401(k)-type plan could jeopardize funding for current employees and retirees for the first time in our systems. Working for state and city government has never included Wall Street style bonuses. What made public sector jobs attractive were the health benefits and a respectable pension. 

The tier VI plan is extremely short-sighted because defined contribution plans are a very big risk. If the markets tank – as they have in the last several years, losing 20% of their value – people living on those 401(k)’s would have to turn to public assistance for support in their golden years. 

While some highly paid political appointees who job hop from one position to another might favor the defined contribution plan because it vests in just one year and would allow them to max out their contribution and take it with them as they come and go in revolving door-style, that would not be the case for the overwhelming majority of state employees.

As Mario Cilento, head of the New York State AFL-CIO, noted, the so-called option “would require employees to work longer, pay up to double in base employee contributions and pay even more if the stock market declines – all to get less in their pension.”

The truth is, tier VI – coming just two years after the creation of a tier V – will sharply reduce the talent pool of prospective state employees and endanger the quality of service we all need. 

Even State Comptroller Thomas DiNapoli has concerns over a 401(k)-type plan:

“401(k)’s were never intended to replace pensions,” DiNapoli commented two days after Cuomo announced his plan, noting that some experts have estimated that 401(k) plans lost more than $1 trillion in the 2008-2009 economic crisis. 

As for Cuomo’s claim that tier VI would save taxpayers billions over 30 years, his budget director, Robert Megna, admitted during a hearing on the governor’s Executive Budget that the proposed pension plan would have little impact on the budget over the next few years.

It wasn’t that long ago that school districts, counties and cities paid 1% into the pension plans due to the success of the stock markets and prudent investments. Because employer contributions are based on multi year rolling averages, today’s improved stock market performance will reduce contribution rates as the returns for 2008, the year of the most recent crash, are dropped from multi year calculations. Perhaps those jumping on the band wagon to attack our public employees should step back for a moment and realize that it’s those workers – not the Wall Street fat cats – who shop locally and support our fragile small business community.

The reduction in benefits insisted on by Governor Cuomo in the adoption of Tier V will produce significant savings for taxpayers over time. To cut public employee pensions by another 40% which is exactly what tier VI would do, would make many future retirees destitute and more reliant on public services. Attacking the middle class and vilifying public employees is not the answer. 
It is up to clear-headed negotiators on both sides and careful deliberation in the State Legislature to make sure public employees are not made the sacrificial lambs of political expediency.

Alan Lubin is Co- Chairman of the Business and Labor Coalition of New York ( BALCONY.)

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