Successfully reported this slideshow.
Your SlideShare is downloading. ×

Tier 6 pension reform myth vs reality

More Related Content

Related Books

Free with a 30 day trial from Scribd

See all

Related Audiobooks

Free with a 30 day trial from Scribd

See all

Tier 6 pension reform myth vs reality

  1. 1. Tier 6 Pension Reform Myth vs. Reality Myth 1: Creating a Tier 6 pension plan is an effort to “demonize” public employees. Reality: Public employees are the ones being hurt most by the out-of-control growth in pension costs for the local governments and their taxpayers. Rapidly rising pension costs crowd-out the ability of local governments to provide essential services and appropriately compensate and maintain the workforce necessary to provide such services. Tier 6 will produce long-term stability in public employer pension costs and, similarly, promote stability for public employees. Myth 2: Our public pension benefits in NY are meager and therefore should continue to be guaranteed, at their current benefit levels, for generations to come. Requiring new public employees to contribute a larger share toward the cost of their pension is unfair. Reality: NY’s public pension benefits are among the most generous in the nation and have rapidly become unaffordable to taxpayers. Over the past two decades, taxpayer-funded contributions to pensions by state/local employers (ERS/PFRS) have increased from $357 million to $4,165 million – an increase of $3.8 billion (or 1,067%) – and are expected to rise an additional 33% over the next three years. Myth 3: Yes, but current employer contributions are not high from an historical perspective. Reality: False. Over the past twenty years, annual pension contributions by NY’s public employers have averaged $1.3 billion. Today’s contribution level for employers is $4.2 billion – 212% higher than the two-decade average. Meanwhile, employee contribution levels are essentially identical to twenty years ago: $286 million today compared to $287 million in 1992, and actually below the historical average of $295 million. Furthermore, U.S. Census data ranks NY’s public employees 48th in terms of relative level of employee contributions to their pensions.
  2. 2. Myth 4: New York’s pension system isn’t broken. There is no need to reform one of the best-funded public pension funds in the nation. Reality: While our pension system is strong from a funding perspective, it is breaking the backs of taxpayers. The pension system is unsustainable in its current form as it fails to reflect taxpayers’ ongoing fiscal capacity to fund the system. Myth 5: Implementing a Defined Contribution plan in NY will be too complicated and too costly for the Retirement System and state/local government employers. Reality: The New York State and Local Retirement System currently bills and collects $114 million in charges from state and local government employers (i.e., The Taxpayer) to fund its administrative budget. This represents a 61% increase between 2006 and 2011. The NYSLRS has more than enough resources and expertise to smoothly implement a Tier 6. Myth 6: Employer contributions are minimal since the vast majority -- currently 83% -- of pension benefits are funded through market returns on system investments. Reality: The very fact that NY’s public pension system, which guarantees a “defined benefit,” relies heavily on an unpredictable and inconsistent revenue source (i.e., investment returns), is what causes public employers and their taxpayers to be a fiscal “backstop” when investment returns don’t meet actuarial expectations. Taxpayers need a more predictable and affordable pension benefit structure in New York. Public employers pay 16% of the cost of public pension benefits and the amount they pay has risen by $3.8 billion (1,000%) over twenty years. Meanwhile, public employees pay 1% of the cost of their pension benefits and the amount they pay has remained very stable over the entire twenty-year period. In fact, according to U.S. Census data, there are only two other states in the nation whose public employees contribute less to their pension than public employees do in New York. Myth 7: Defined Contribution plans are inherently risky and not intended to be a comprehensive retirement plan, but rather a supplement to defined benefit pensions. Reality: Longstanding voluntary participation by SUNY, CUNY and Federal government employees in Defined Contribution plans -- that ARE NOT 401(k) plans --has proven successful from both an employee and employer perspective. Myth 8: But individuals can’t be trusted to make the correct choice between Defined Benefit and Defined Contribution pension plans. Reality: The Tier 6 proposal is about options for new employees. The Retirement System, employers and employee unions will play a key role in ensuring that their members make educated decisions when choosing between a DB and a DC plan.

×