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October 29, 2009


Less than meets the eye in “Tier V”

E.J. McMahon

Today’s “DRP Did You Know” from Governor Paterson’s office says the governor’s proposed pension changes for new newly hired employees will save $60 billion over 30 years.  But here’s the missing perspective: for state government, the modest changes proposed by Paterson would ultimately—i.e., over a decade from now—represent a roughly 23 percent annual reduction* in a pension bill that is poised to increase by 155 percent in just the next three years.

Check it out:

More on the shortcomings of Paterson’s Tier V proposal here.

The problem with Tier 5 is that, while it would shave away the most costly sweeteners added to Tier 4 since the early 1990s, it would preserve the basic defined benefit (DB) plan, which represents a massive and growing financial risk for taxpayers while offering needlessly generous benefits to workers.  A better solution would be a mandated version of the kind of defined-contribution plan already chosen voluntarily by most employees of SUNY.

* The March 2009 background memo on the governor’s proposal says the pension contribution for Tier 5 members of the state Employees’ Retirement System (ERS) would be 2.5 percentage points lower than that of existing employees.  The “normal” cost for current new entrants to the Tier 4 system–not what the state actually pays, but what it would pay in a hypothetically “smoothed” universe where the retirement fund precisely hit its investment return target of 8 percent every year–has been estimated at about 11 percent of salary.

2 Comments »

  1. New York state, its counties, towns and school districts, will be burdening its future generations with an incredibly high–tens of billions– underfunded pension cost, in addition to completely unfunded health care costs. The key problem is that both political parties are terrified of the public employee unions and neither party will face up to meaningful pension reform, viz., going to a defined contribution system as is occurring in private industry.

    Comment by Frank Russo — October 30, 2009 @ 1:27 pm

  2. [...] changes were contained in Governor Paterson’s original “pension reform” proposal, which was a colossal missed opportunity to begin with.  The worst of the giveaways to teachers in the final bill–effectively locking in one of the [...]

    Pingback by NY Fiscal Watch — December 2, 2009 @ 4:09 pm

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