In his waning hours as governor of New York, David Paterson has penned a Daily News op-ed warning of "a new crisis on the horizon that threatens the solvency of local governments and the recovery of the U.S. economy: teetering public pension funds on the verge of insolvency,
with the retirement security of millions of working Americans hanging in
the balance."
In late 2009, Paterson rashly made an unprecedented no-layoff
pledge
to state employee unions -- a pledge he has since broken -- in exchange
for the unions' agreement not to oppose a few exceedingly modest changes
in pension benefits for newly hired state and local government
workers.
Among other things, New York's so-called Tier 5 "pension reform" bill effectively gave local school district unions a permanent veto over any change in health benefits for retired school employees. This will make it more difficult to untangle more than $200 billion in completely unfunded retiree health care liabilities for public employees in New York -- a subject Paterson rather pointedly ignores in his Daily News article.
The second paragraph of Paterson's op-ed makes this puzzling prediction:
However, it's a stretch to imply that pension funds in general are "on the verge of insolvency." New York's two statewide pension funds -- the New York State and Local Retirement System (NYSLRS) and the New York State Teachers' Retirement System (NYSTRS) -- are comparatively well-funded by national standards. For now, at least.
The real problem is that, in order to stay that way, both pension funds are about to stick taxpayers with substantially higher bills. In our recent report, "New York's Exploding Pension Costs," Josh Barro and I forecast that tax-funded employer contributions to NYSTRS alone will more than quadruple, rising by some $3.6 billion over the next five years. Meanwhile, employee contributions are minimal or non-existent -- and fixed. This is a fundamental flaw with the defined-benefit pension system, but Paterson can't bring himself to call for its abolition.
Instead, his response to growing pension funding pressure in New York has been to kick the can down the road -- into the laps of future taxpayers. Just this year, as part of his last budget, the governor joined state Comptroller Thomas DiNapoli in successfully pushing a new law that will allow the state and its local governments to convert a portion of each year's required pension contributions into a 10-year IOU payable to the pension fund.
To solve the pension funding crisis, "immediate action" will be necessary, Paterson says. What kind of action? Well, for one thing, he suggests "pension managers must consider possible revenue expansion ideas in addition to difficult changes to their benefit plans."
Among other things, New York's so-called Tier 5 "pension reform" bill effectively gave local school district unions a permanent veto over any change in health benefits for retired school employees. This will make it more difficult to untangle more than $200 billion in completely unfunded retiree health care liabilities for public employees in New York -- a subject Paterson rather pointedly ignores in his Daily News article.
The second paragraph of Paterson's op-ed makes this puzzling prediction:
In 2011, the health of these public [pension] funds will take center stage with the very real possibility of significant write-downs in pension asset pools at a time when most funds can ill-afford it.
In fact, the nationwide shortfall in public pension fund assets has been plain for some time now; instead of meeting their 7-8 percent annual return targets, most public pensions funds (including New York's) have lost money in the past decade. "Significant write-downs" have already occurred. Some states and localities that were failing to pay their annual required contributions even before the last two Wall Street downturns -- Illinois and New Jersey in particular -- are now facing the real prospect that their pension funds will wun out of money within the next few years.
However, it's a stretch to imply that pension funds in general are "on the verge of insolvency." New York's two statewide pension funds -- the New York State and Local Retirement System (NYSLRS) and the New York State Teachers' Retirement System (NYSTRS) -- are comparatively well-funded by national standards. For now, at least.
The real problem is that, in order to stay that way, both pension funds are about to stick taxpayers with substantially higher bills. In our recent report, "New York's Exploding Pension Costs," Josh Barro and I forecast that tax-funded employer contributions to NYSTRS alone will more than quadruple, rising by some $3.6 billion over the next five years. Meanwhile, employee contributions are minimal or non-existent -- and fixed. This is a fundamental flaw with the defined-benefit pension system, but Paterson can't bring himself to call for its abolition.
Instead, his response to growing pension funding pressure in New York has been to kick the can down the road -- into the laps of future taxpayers. Just this year, as part of his last budget, the governor joined state Comptroller Thomas DiNapoli in successfully pushing a new law that will allow the state and its local governments to convert a portion of each year's required pension contributions into a 10-year IOU payable to the pension fund.
To solve the pension funding crisis, "immediate action" will be necessary, Paterson says. What kind of action? Well, for one thing, he suggests "pension managers must consider possible revenue expansion ideas in addition to difficult changes to their benefit plans."
The governor's (mercifully brief) Daily News article concludes:
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