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MPNnow.com —
With New York facing a $3 billion deficit in 2013, state officials will be looking closely at what’s left in the budget to cut. But some are pushing for structural changes.
In particular, changes to the multi-billion dollar pension industry.
In 2011, benefit payouts for public employee pensions reached a 20-year high of $8.4 billion, which is around 6 percent of the state’s $133 billion annual spending plan. But ten years ago, the payout was less than half that at $4.1 billion, according to state figures.
And since employer contribution rates are determined by the state then passed along to municipalities, it’s local taxpayers who are footing the ever-growing bill.
In the town of Greece, retirement contributions are around 9 percent of the $55.6 million total budget for 2012. Costs hit $5.2 million for 2012, up from $4.2 million in 2011 and around $3.2 million in 2010. Back in 2002, contribution costs were $140,000, part of a $38.5 million spending plan.
A new coalition calling itself Let NY Work brings together various government, education and business interest groups to address mandate relief. The group has itemized costly, mandated programs, offering ideas for potentially fundamental changes to the system.
“Where we’re at in New York state right now is the pension load on local governments, municipal governments as well as school districts, is incredibly high,” said Irondequoit native Brian Sampson, Executive Director of Unshackle Upstate, one of the groups in the 11-member coalition. “We have one of the richest funded benefit plans in the country that we provide to public employees.”
Scott Adair, director of finances for Monroe County, said local governments are seeing unprecedented increases in pension costs. But any changes likely wouldn’t address existing employees, he said — they would only apply to new hires.
“There’s no plateau in sight, the rise and fall of the stock market indicates how the pension system is doing,” he said.
Pension bills in the county more than doubled during a three-budget cycle, going from $19 million in 2010, to $31.4 million in 2011, to $40.4 million for 2012.
Making changes
In 2011, Monroe County was one of four counties that took advantage of a pension amortization program, a long-term repayment plan managed by the state. The county deferred $6 million worth of pension payments, to be repaid with 5 percent annual interest later.
Other changes to the system have been proposed. A new level for state, local or school employees, Tier 6, could include higher contribution rates for new hires. And earlier this year, Gov. Andrew Cuomo proposed doubling employee contribution rates.
With New York facing a $3 billion deficit in 2013, state officials will be looking closely at what’s left in the budget to cut. But some are pushing for structural changes.
In particular, changes to the multi-billion dollar pension industry.
In 2011, benefit payouts for public employee pensions reached a 20-year high of $8.4 billion, which is around 6 percent of the state’s $133 billion annual spending plan. But ten years ago, the payout was less than half that at $4.1 billion, according to state figures.
And since employer contribution rates are determined by the state then passed along to municipalities, it’s local taxpayers who are footing the ever-growing bill.
In the town of Greece, retirement contributions are around 9 percent of the $55.6 million total budget for 2012. Costs hit $5.2 million for 2012, up from $4.2 million in 2011 and around $3.2 million in 2010. Back in 2002, contribution costs were $140,000, part of a $38.5 million spending plan.
A new coalition calling itself Let NY Work brings together various government, education and business interest groups to address mandate relief. The group has itemized costly, mandated programs, offering ideas for potentially fundamental changes to the system.
“Where we’re at in New York state right now is the pension load on local governments, municipal governments as well as school districts, is incredibly high,” said Irondequoit native Brian Sampson, Executive Director of Unshackle Upstate, one of the groups in the 11-member coalition. “We have one of the richest funded benefit plans in the country that we provide to public employees.”
Scott Adair, director of finances for Monroe County, said local governments are seeing unprecedented increases in pension costs. But any changes likely wouldn’t address existing employees, he said — they would only apply to new hires.
“There’s no plateau in sight, the rise and fall of the stock market indicates how the pension system is doing,” he said.
Pension bills in the county more than doubled during a three-budget cycle, going from $19 million in 2010, to $31.4 million in 2011, to $40.4 million for 2012.
Making changes
In 2011, Monroe County was one of four counties that took advantage of a pension amortization program, a long-term repayment plan managed by the state. The county deferred $6 million worth of pension payments, to be repaid with 5 percent annual interest later.
Other changes to the system have been proposed. A new level for state, local or school employees, Tier 6, could include higher contribution rates for new hires. And earlier this year, Gov. Andrew Cuomo proposed doubling employee contribution rates.
One of the top suggestions from Let New York Work is a switch to a defined contribution plan for public sector pensions.
Under a defined contribution plan, the risk is shifted from the employer to the employee, who would be responsible for managing their own portfolio.
Employer contributions are made at a fixed rate, and employees can roll over the funds into an individual account should they leave their position.
The current system, called a defined benefit plan, is characterized by variable employer contribution rates, pooled investments and payouts that can become more valuable for the employee based on personalized factors, like length of employment. Eric Sumberg, press secretary for the state comptroller’s office which administers pensions, says employer contribution rates depend on the performance of the pension fund under defined benefit plans.
“This is a much more efficient way to pay for retirement security,” Sumberg said. “We have the obligation and it’s our duty to pay for the system in the most efficient ways possible.”
New options
Some states, like Nebraska, Utah and Michigan, made the shift to defined contribution plans for public employees. Utah’s legislation offers a plan with a fixed 10 percent contribution rate for public employees, and 12 percent for police and fire employees.
There’s also an option for a combined plan, which allows for fixed employer contributions vested after four years, and additional employee requirements that are immediately vested.
Frank Mauro, executive director at the Fiscal Policy Institute, says pension systems rely on “situtional economics.”
If times are good, a fixed 10 percent rate could result in more government spending. In the 1990s and early 2000s, when the stock market was riding high, defined benefit plans in New York state led to retirement system contributions that were well under 15 percent, even under 3 percent in some cases, according to state actuarial data.
Today, it’s a much different story. In 2012 and 2013, employer contribution for police and fire employees will hit 25.8 percent, up 4.2 percentage points from the current fiscal year. Non-police and fire employee rates will be at 18.9 percent, up 2.6 percentage points, according to data from the state comptroller’s office.
It’s easy to see a fixed rate as a solution, Mauro says, when current rates are so high, but a switch would risk the flexibility to have the low rates of pre-2008 years. And, benefits overall would likely be reduced.
“With the defined contribution plan, you have this consistency, whereas you don’t have that stability with the way the defined benefit plan has been administered,” Mauro says. “But even if you began a new tier with a defined contribution plan, it wouldn’t affect the state or local budget situation in the short run.”
