NEW: Pension Watch '06: The Sweetening Continues
FISCALWATCH MEMO July 13, 2006

By E.J. McMahon and Matt Smith

Seemingly oblivious to the already high and rising cost of taxpayer-funded public pensions in New York, state lawmakers this year passed at least 36 measures that would expand pension benefits for groups of public workers.

The 2006 crop of pension sweeteners carries a total price tag of at least $189 million, including about $84 million in one-time costs and $105 million in recurring annual costs. These costs would come on top of at least $64 million in additional state and local pension obligations resulting from benefit increases signed into law by Governor Pataki last year (see below).

The bills passed by both houses this year-mostly in the final weeks of session-were among hundreds introduced during the 2005-06 session that aimed to enhance the already-generous pension benefits of New York's public employees. The count does not include scores of additional measures designed to adjust pension benefits for individual workers and their beneficiaries.

As of July 12, Gov. George Pataki had signed one of this year's broad-based pension increases: Chapter 74 of 2006, which would increase to $30,000 the amount a retired government worker may earn in public employment without suffering a reduction in his or her retirement allowance. The expanded double-dipping allowance—which supposedly carries a negligible cost to taxpayers—amends a previous bill passed in 2004 that set the earning limitation at $27,500. The earning limit has changed numerous times since 1996, when it was set at $12,500.

The remaining measures passed this year by the Senate and Assembly touch on a wide range of public-employment issues. They include a temporary early retirement bill, an increase in pension benefits for police and other security officers and lower retirement ages for some other workers.

The Legislature's Response

Public employees in New York already enjoy pay and benefits that exceed what is available to comparable workers in the private sector. Most police and other public-safety employees have long been eligible to retire at half-pay after just 20 years on the job, while the vast majority of non-uniformed workers can retire as early as age 55 with guaranteed pensions of 60 percent or more of their final average salaries. Private-sector workers, by contrast, do not have guaranteed pensions but rely on employer-supported individual retirement accounts.[1]

Most of the pension-related legislation passed in Albany in 2006 is designed to further enhance existing benefits and widen eligibility standards. For instance, under one bill (A3340/S7386) now awaiting the governor's signature, the state would pay a one-time cost of $70 million to offer a new retirement option to correction officers and security personnel at mental hospitals. Sponsors said this was justified due to the "difficult and stressful nature" of the correction officer and hospital occupations. Thus, the bill would allow these workers to choose between a half-pay 25-year retirement plan and ordinary benefits, which allow members at age 55 to retire upon reaching 30 years of service.

Other bills approved by the Senate and Assembly include:

A temporary early retirement plan (A11805-S8408). A two-year plan rushed through the Legislature in June would allow Tier 2, 3 and 4 public employees who are at least 55 years old with 25 years of service to retire with full benefits—which are normally available without reduction only after 30 years of service. Eligible workers will have the opportunity to retire within two 90-day "windows" over the next two years.

The plan will cost public employers in all pension systems an additional $51 million to $56 million a year, with about one-fifth of the total falling on New York City's pension systems, according to the fiscal impact notes at the end of the bill. If "55/25" retirement was offered as a permanent benefit—as is still being sought by the United Federation of Teachers in New York City, among others-the same fiscal notes indicate it would add $368 million a year to the annual pension obligations of the state and the city.

Non-contributory retirement for higher education employees (A10570-S7389-A). The state's costly 2000 pension benefit sweeteners eliminated the mandatory 3 percent contribution for state workers who have 10 years or more service—resulting in a substantial reduction in employee support for public pensions funds. The bill passed by the Legislature this year would extend the same sweetener to SUNY or CUNY members who are now required to contribute at least 3 percent of salaries (matched by an employer contribution of up to 10 percent) to their defined-contribution retirement savings plan. When fully phased in over three years, it will have an annual cost of $17 million-effectively a pay increase for these employees.

No school worker left behind (A9935-S6719B). Teacher aides, education assistants, bilingual professional assistants and auxiliary trainers who previously were not entitled to apply for membership in the public teachers' retirement system would now be allowed to do so under legislation passed in 2006. The cost to the public would be $2 million per year.

A higher taxpayer toll for bridge and tunnel workers (A10183-S6937). Triborough Bridge and Tunnel Authority (TBTA) officers would be eligible for retirement at half pay after 20 years of service, regardless of age—the same benefit available to police and firefighters. The added cost to the authority would come to $1 million per year.

Cashing in on unpaid leave (A11024-S7906). Some New York City Transit Authority employees would receive retirement benefits for periods of unpaid child-care leave at a cost to the public of $600,000 annually.

Early retirement for tax law enforcers (A5392-S2566-A). A bill passed by lawmakers would create an optional 25-year retirement plan for peace officers and police in the Department of Taxation and Finance. The plan would cost of $1.65 million.

Department of Law investigators, meanwhile, would be offered half-pay benefits under a retirement plan (A9804-S4752-B) for those with at 25 years service. The cost of that plan would be $1.8 million.

While most of the changes enacted this year affect relatively small numbers of employees, they all have larger implications. Generally, whenever one group of public employees gets a pension-benefit expansion, other groups demand the same thing. The overall trend, therefore, has a ratcheting-up effect on public-pension costs in the long run.

Continuing a trend

The Legislature's willingness to approve costly pension bills isn't just an election-year phenomenon. In 2005, the Senate and Assembly together both passed 54 bills increasing pension benefits for groups of employees, with total costs of at least $105 million.[2] Governor Pataki subsequently vetoed 24 and signed 30 of these measures. The total cost of last year's pension benefit expansion came to $64 million—the lion's share of which was attributed to the cost of establishing a presumption of disability benefits for any New York City employee who worked on the cleanup of the World Trade Center site after the 9/11 attack.

These increases continue to be approved against a backdrop of skyrocketing pensions expenses for every level of government. From 2000 to 2005, statewide public-pension contributions soared by more than $5.6 billion-and they are still climbing. In New York City alone, higher annual pension costs have consumed three-quarters of all the new revenue generated for the city by a record property tax rate increase and rising property assessments since Mayor Michael Bloomberg took office in 2002.

Today's resurgent pension obligations represent a return to historical norms after an unprecedented period of declining costs during the 1990s. Significant recurring infusions of tax money will be needed to make good on New York State's generous retirement promises to its public employees for many years to come.

Because the New York State Constitution does not allow pension benefits to be "diminished or impaired" for current public employees, nothing can be done to reverse the recent increase in pension costs. Still, steps can be taken by the Legislature to reduce future pension run-ups and ease the burden on taxpayers down the road. For example, shifting newly hired employees to savings-based defined contribution plans, such as 401(k) accounts or the type of plans available to SUNY and CUNY employees, would begin to generate significant annual savings within a decade while providing workers with a retirement benefit that is generously funded by private-sector standards. However, following the lead of public-employee unions, the Legislature still seems determined to follow precisely the opposite path.

 

Notes

  1. See the June 2006 Special report of the Empire Center, Defusing New York's Public Pension Bomb: A fair Approach for Workers and Taxpayers, at http://www.empirecenter.org/reports/2006/06/defusing_new_yo.php.
  2. This represents an update of figures first reported in the July 2005 Manhattan Institute/Empire Center FiscalWatch Memo, "Legislators Still Strive to Sweeten Public Pensions," posted at http://www.nyfiscalwatch.com/html/fwm_2005-07.html.

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