Comments on: Governor Cuomo’s pension gimmick http://www.nytorch.com/?p=7000 Analysis and Commentary on Public Policy in New York State Sat, 18 May 2013 17:43:23 +0000 http://wordpress.org/?v=2.6.2 By: xif http://www.nytorch.com/?p=7000#comment-98587 xif Tue, 05 Feb 2013 05:39:35 +0000 http://www.nytorch.com/?p=7000#comment-98587 As it happens, it turns out that EJM is correct that there is no commitment in the Governor's proposal to fully fund the system were shortfalls to occur. But why would entities such as the Empire Center not press for such a plan? And if the future turns out to be brighter than expected and a surplus develops, then surely one could come up with a reasonable plan to utilize that surplus in a responsible fashion, whether it entails making the state whole for its "excess" payments during the short years and/or lowering the stabilized contribution rate appropriately and/or returning the bonus to the taxpayers in some fashion and/or something else entirely. Instead of just being critical, it certainly could be more helpful were responsible policy advocates and watchdogs to develop and get behind some reasonable alternatives to both the currently dysfunctional system and the flawed proposal from the governor. What we have now is not sustainable. As it happens, it turns out that EJM is correct that there is no commitment in the Governor’s proposal to fully fund the system were shortfalls to occur. But why would entities such as the Empire Center not press for such a plan? And if the future turns out to be brighter than expected and a surplus develops, then surely one could come up with a reasonable plan to utilize that surplus in a responsible fashion, whether it entails making the state whole for its “excess” payments during the short years and/or lowering the stabilized contribution rate appropriately and/or returning the bonus to the taxpayers in some fashion and/or something else entirely. Instead of just being critical, it certainly could be more helpful were responsible policy advocates and watchdogs to develop and get behind some reasonable alternatives to both the currently dysfunctional system and the flawed proposal from the governor. What we have now is not sustainable.

]]> By: Chris Kendall http://www.nytorch.com/?p=7000#comment-98498 Chris Kendall Sat, 02 Feb 2013 21:20:53 +0000 http://www.nytorch.com/?p=7000#comment-98498 We are fortunate to have people like EJ McMahon and the Empire Center to give us an objective analysis of the fiscal proposals and policies of the State government. Most of us do not have time to do the research. Isn't the question, we know you can not borrow from the pension fund, so can you contribute an IOU under the banner of smoothing? What would be the impact on this new proposal and the required contributions if the stock market dropped by 25%? Under current rules, contributions would rise sharply. The only real solution is to change to a pure defined contribution pension if we are going to keep the 2% tax cap. SUNY professionals have done very well under that DC system they elected. We are fortunate to have people like EJ McMahon and the Empire Center to give us an objective analysis of the fiscal proposals and policies of the State government. Most of us do not have time to do the research. Isn’t the question, we know you can not borrow from the pension fund, so can you contribute an IOU under the banner of smoothing? What would be the impact on this new proposal and the required contributions if the stock market dropped by 25%? Under current rules, contributions would rise sharply. The only real solution is to change to a pure defined contribution pension if we are going to keep the 2% tax cap. SUNY professionals have done very well under that DC system they elected.

]]> By: DS http://www.nytorch.com/?p=7000#comment-98409 DS Mon, 28 Jan 2013 01:37:38 +0000 http://www.nytorch.com/?p=7000#comment-98409 Is anyone asking what this could mean for today's students. Does the author of the article understand the impact to students of allowing the pension contributions to increase to 16.5%? Should not municipalities have the opportunity to level off the ups and downs of pension contributions? I am a novice at this, but there seems to be one simple answer here. Firstly, it is clear that the contribution amount is high given historical data. If we work with that premise and if the actuaries agree and if we have the safety net of the evaluation periods, we can insure system solvency by setting the rate this high. Here is what the tax payer needs to have this "gimmick" make fiscal sense. Districts need an opt-out option...one in which they could "balance" their payments over time (factoring in the system's growth). OK--enough of my poorly structured economics lesson. As a school board member concerned about today's students (mine have since graduated from K-12 public school), we need to strongly consider this option. If we don't, students will suffer. Is anyone asking what this could mean for today’s students. Does the author of the article understand the impact to students of allowing the pension contributions to increase to 16.5%? Should not municipalities have the opportunity to level off the ups and downs of pension contributions? I am a novice at this, but there seems to be one simple answer here. Firstly, it is clear that the contribution amount is high given historical data. If we work with that premise and if the actuaries agree and if we have the safety net of the evaluation periods, we can insure system solvency by setting the rate this high. Here is what the tax payer needs to have this “gimmick” make fiscal sense. Districts need an opt-out option…one in which they could “balance” their payments over time (factoring in the system’s growth). OK–enough of my poorly structured economics lesson. As a school board member concerned about today’s students (mine have since graduated from K-12 public school), we need to strongly consider this option. If we don’t, students will suffer.

]]> By: xif http://www.nytorch.com/?p=7000#comment-98310 xif Fri, 25 Jan 2013 16:46:13 +0000 http://www.nytorch.com/?p=7000#comment-98310 As always, the devil will be in the details: if the proposal does not provide for a state-funded mechanism to make the system whole, if necessary, and if the only adjustments are the periodic 2% (I'm assuming that's percentage points), then either the plan is fiscally imprudent on its face or it simply kicks the reckoning can down the road. On the other hand, a reasonable and responsible approach would be to couple the constant contribution from localities with a hard commitment by the state to make up the difference -- it is the state that sets virtually all the rules of the game (both pension and collective bargaining) and consequently should have at least a portion of the responsibility for the consequences of those rules. With such a shared approach, localities would not be "let-off-the-hook" for their role, however limited, in driving the systems costs, but it would bring some much-needed fairness, not to mention stability, to an almost out of control situation. As always, the devil will be in the details: if the proposal does not provide for a state-funded mechanism to make the system whole, if necessary, and if the only adjustments are the periodic 2% (I’m assuming that’s percentage points), then either the plan is fiscally imprudent on its face or it simply kicks the reckoning can down the road. On the other hand, a reasonable and responsible approach would be to couple the constant contribution from localities with a hard commitment by the state to make up the difference — it is the state that sets virtually all the rules of the game (both pension and collective bargaining) and consequently should have at least a portion of the responsibility for the consequences of those rules. With such a shared approach, localities would not be “let-off-the-hook” for their role, however limited, in driving the systems costs, but it would bring some much-needed fairness, not to mention stability, to an almost out of control situation.

]]> By: andrew giaquinto http://www.nytorch.com/?p=7000#comment-98297 andrew giaquinto Thu, 24 Jan 2013 19:51:29 +0000 http://www.nytorch.com/?p=7000#comment-98297 excellent job above. Although the school districts are being hammered by the pension costs, none of us wish for gimmick solutions which violates accounting and pension regulations. excellent job above. Although the school districts are being hammered by the pension costs, none of us wish for gimmick solutions which violates accounting and pension regulations.

]]> By: Scott http://www.nytorch.com/?p=7000#comment-98295 Scott Thu, 24 Jan 2013 18:50:59 +0000 http://www.nytorch.com/?p=7000#comment-98295 This may be one of the few times I agree with Mr. McMahon. There is no good reason for a local government to accept this proposal. It is kicking the can down the road, and probably not very far. The can will be much bigger next time you try to kick it. What the Governor should propose is a minimum contribution rate every year. Then when the stock market is riding high, money is still going in. This would also help even out the wild swings, as governments would always be budgeting for some amount, and the few years that the pension fund is over funded would average out for the tough years This may be one of the few times I agree with Mr. McMahon. There is no good reason for a local government to accept this proposal. It is kicking the can down the road, and probably not very far. The can will be much bigger next time you try to kick it.

What the Governor should propose is a minimum contribution rate every year. Then when the stock market is riding high, money is still going in. This would also help even out the wild swings, as governments would always be budgeting for some amount, and the few years that the pension fund is over funded would average out for the tough years

]]> By: Bob http://www.nytorch.com/?p=7000#comment-98291 Bob Thu, 24 Jan 2013 12:41:34 +0000 http://www.nytorch.com/?p=7000#comment-98291 The wild swings over the years in employer contribution rates to the various pension systems, from lows of less than 1 present to highs in the 20's, must have had a negative effect on overall investment income and does not seem fiscally prudent. In fact, I think one could characterize the years with low ECRs as underfunding pensions. (Additionally, it must be difficult for state agency, municipal, and school district budget planners to work such swings in the ECR.) No personal financial advisor would recommend to a client that they save for retirement by investing $40 a month for several years, then over time increase the amount to $2,000 a month , and then decrease the amount to $200 month, and so on. While I don't know if the Governor's plan is sufficiently prudent to be the best choice for addressing the need for 'smoothing out' the ECR, at least it has some people examining the concept. It would be a shame if some fiscally-responsible approach was not implemented. The wild swings over the years in employer contribution rates to the various pension systems, from lows of less than 1 present to highs in the 20’s, must have had a negative effect on overall investment income and does not seem fiscally prudent. In fact, I think one could characterize the years with low ECRs as underfunding pensions. (Additionally, it must be difficult for state agency, municipal, and school district budget planners to work such swings in the ECR.)

No personal financial advisor would recommend to a client that they save for retirement by investing $40 a month for several years, then over time increase the amount to $2,000 a month , and then decrease the amount to $200 month, and so on.

While I don’t know if the Governor’s plan is sufficiently prudent to be the best choice for addressing the need for ’smoothing out’ the ECR, at least it has some people examining the concept. It would be a shame if some fiscally-responsible approach was not implemented.

]]> By: mcmahon http://www.nytorch.com/?p=7000#comment-98286 mcmahon Thu, 24 Jan 2013 01:07:10 +0000 http://www.nytorch.com/?p=7000#comment-98286 To first commenter: Unless I missed something, which perhaps you can find in the memo, he's not offering to have the state make up any shortfall. The state would not be involved. If I'm wrong, I stand corrected. ejm To first commenter:

Unless I missed something, which perhaps you can find in the memo, he’s not offering to have the state make up any shortfall. The state would not be involved. If I’m wrong, I stand corrected.

ejm

]]> By: Xif http://www.nytorch.com/?p=7000#comment-98282 Xif Wed, 23 Jan 2013 23:33:40 +0000 http://www.nytorch.com/?p=7000#comment-98282 If the governor is proposing that the localities' contributions will be a constant percentage, with any shortfall made up by the State (such that the overall integrity of the system remains the same as it would be under the \old\ system) then the tradeoff from local governments' perspectives is surely worth it. It is primarily the enormous upside yearly variability that is so impossible to deal with. And if the system is lucky enough to experience a \fat tail,\ the risks are not necessarily worse that the bonus will be squandered under this proposal. Further, if in fact the governor is truly committing the state to continue funding an actuarially sound system (without presumably watering down the assumptions beyond the existing ones) then the overall risk to the system should not increase. If the governor is proposing that the localities’ contributions will be a constant percentage, with any shortfall made up by the State (such that the overall integrity of the system remains the same as it would be under the \old\ system) then the tradeoff from local governments’ perspectives is surely worth it. It is primarily the enormous upside yearly variability that is so impossible to deal with. And if the system is lucky enough to experience a \fat tail,\ the risks are not necessarily worse that the bonus will be squandered under this proposal. Further, if in fact the governor is truly committing the state to continue funding an actuarially sound system (without presumably watering down the assumptions beyond the existing ones) then the overall risk to the system should not increase.

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