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February 19, 2013


Not quite double-dipping

E.J. McMahon

Kathy Marchione, 58, “retired” as Saratoga County Clerk before taking office as a state senator this year. That reportedly qualified her to start collecting a $66,000 pension—the equivalent of a job paying over $70,000 a year, after adjusting for the fact that pensions are not subject to payroll or state income taxes.  Which is not too shabby, considering the average private sector pay in the Capital Region was just over $43,000 as of 2011.

But instead of double-dipping — i.e., collecting both a $79,500 legislative base salary (not including added stipend) and a pension, as more than a dozen of her legislative colleagues are doing — Marchione says she’ll give her pension to charity.

That’s nice. However, granting Sen. Marchione the best of intentions, the result is not entirely altruistic.  A politician can buy a lot of goodwill (not to mention, it would seem, income tax deductions) with $66,000 a year in philanthropic largesse.

By the way, a career non-government worker would need to have $1.2 million in the bank to buy herself a (non-tax-free) annuity yielding an income stream of $66,000 a year starting at age 58.

This is not to pick on the senator – who, after all, is simply claiming what is rightfully hers.  Her pension situation is most noteworthy for its utter un-noteworthiness.  A pension of $66,000 a year is entirely typical of what career public employees and teachers can receive under Tiers 3 and 4  of the state and local pension system.  And, keep in mind, public employees in New York collect Social Security benefits in addition to their pensions.

Governor Cuomo 2012 pension “reform” reduced benefits, right?  Well, yes – but not by much.  A Tier 6 employee with Sen Marchione’s work history could not retire with full benefits before age 63, still early by private-sector terms. She’d have to contribute more to the pension fund as an employee than Tier 4 workers did before they were relieved of having to make any contribution after 10 years of service, under sweeteners passed in 2000. Her pension benefit would come to about $61,000 a year – still considerably above the region’s average private wage, not to mention the average (non-guaranteed) private retirement benefit.

Meanwhile, the state Court of Appeals today overturned an Appellate Division ruling and unfroze (at least for now) the $79,000 penalty for a former Schenectady schools facilities manager and union president who was convicted of arson, weapons and other charges after conducting what one newspaper compared to a virtual one-man reign of terror among his co-workers. The case appears to have turned on a technicality and may yet return to the high court before it’s over,

Filed under: Public Pensions

15 Comments »

  1. She earned her pension and should collect it along with EARNED salary.
    Why is it not a problem when others do it (democrats Tonko, Rosamilia, to name two) but when others might do it (republican Congressman Gibson who does not take his & Senator Marchione) it becomes fodder to fuel the sheeple?
    Explain, please.

    Comment by Kate — February 19, 2013 @ 3:19 pm

  2. Um, who said it’s OK when Democrats do it? The main problem here is not any individual’s perfectly natural response to an incentive few of us could resist, but a pension system that is gratuitously, needlessly generous, and thus costly to maintain. Why should any pension kick in while a “retired” employee is still collecting a public salary? Answer: that’s what the rules allow. Unfortunately, the people who control the laws shaping pension benefits are the same people who benefit from them.

    PS — The “dead man’s gamble” — Sen. Farley’s perfectly reasonable rationale for finally “retiring” at an advanced age, lest his wife be left with nothing if she had survived him before he submitted his papers — is something that simply does not exist in a DC system.

    Comment by mcmahon — February 19, 2013 @ 3:45 pm

  3. Double dipping is another example of public employees enjoying better compensation than the private sector people supporting them.

    Comment by markgrimm — February 19, 2013 @ 4:26 pm

  4. Well, the ‘press’ seems to think it’s OK because as I noted there is little to no mention of their dipping (or when they do it is not a negative statement) when they double dip.
    And the recent pension reform along with Tier VI was anything but that.
    Don’t worry about these examples.
    Anyone retired as a public pension employee over 65 can collect full pension, full Social Security, and full salary without filing any form authorizing it.
    They retire and just get rehired.
    More triple dippers out there than you know.

    Comment by Kate — February 19, 2013 @ 5:28 pm

  5. Wouldn’t someone working in Saratoga County need a pre-tax salary of at least $80k to take home $66k? Combined state and federal taxes, even after deductions and charitable contributions. You seem to be assuming a combined state, federal PIT of under 6% — where do I sign-up for that?

    (You wrote “A $66,000 pension—the equivalent of a job paying over $70,000 a year.”)

    Comment by Hugh Taylor — February 19, 2013 @ 6:45 pm

  6. Now, Mr McMahon, please tell us how much of that $66,000 actually is tax payer money and not return on pension plan investments. I understand your handlers, Koch etc, are forcing your hand on the spin but to leave out a fact that somewhere around 10%-20% of that $66,000 actually comes from tax payers is disingenuous at best and of course intentionally misleading. When you make public statements like this with the blatant intention of spinning the discussion you lose a ton of credibility. Of course credibility isnt really what you are shooting for in the first place

    Comment by Joe Dunphy — February 20, 2013 @ 7:31 am

  7. The last comment reflects a common fallacy among those who defend the traditional pension system — the notion that much of the money in the pension fund appears out of thin air through returns on pension fund investments. In fact, Tom DiNapoli doesn’t print his own currency (not yet, anyway). Every single penny invested by public pension funds originates with taxpayers or employees–mainly taxpayers, who are currently paying more to bail out the pension fund’s huge investment LOSSES in 2007-09. Any investment earnings by pension funds also represent an opportunity cost for the rest of us; i.e., if more of the money had remained in our pockets, it ultimately would have been spent and invested in other ways (for example, on our kids’ college tuitions)

    Comment by mcmahon — February 20, 2013 @ 8:06 am

  8. In answer to commenter #5: you’re a bit high. In isolation, not combined with any other wage or salary income, a $66,000 pension is free of (a) 7.65 percent Social Security and Medicare tax, and (b) an effective state income tax rate ranging from 2 to 4 percent, depending on filing status. To be conservative, call the combined avoided federal payroll and state income tax 10 percent. In that case, you’d need a job paying $73,400 to take home $66,000. Depending on filing status, exemptions, etc., the state income tax will fluctuate, but the payroll tax is fixed. A pension in isolation is always the equivalent of a job paying at least 8.27 percent more, without even considering state income tax.

    Comment by mcmahon — February 20, 2013 @ 8:18 am

  9. [attn Mr. Dunphy: you are welcome to disagree, but not to be disagreeable. Thus the initial line of your comment has been edited out. -- EJM]

    here are some FACTS

    take the teachers retirement system, who EVERYONE says is the most costly to tax payers and in fact the contribution rates are generally higher for tax payers when compared to state employment

    the 30 yr average for TAX PAYERS is 10.57%
    the 20 yr average for TAX PAYERS is 5.48%
    the 10 yr average for TAX PAYERS is 7.88%

    the fact that this year will see a spike to 15-16% because of an under-performing market wont change the fact that you are attempting to spin the truth into some sort of problem. The truth of the matter is that over the long haul contribution rates for tax payers is quite manageable. Not only that, it also fully supports what I said. 10-20% is actually tax payer dollars. YOU are attempting to credit the performance of the pension fund ie the whole 150billion as if it was tax payer money. It most certainly is not. By your logic some employee with a 401k that they smartly invested $50,000 from the employer over 20 years and turned it into a million or more is actually credited completely to the employer giving that employee a million dollars.

    The tax payer gets credit for the contribution rate. THAT IS IT. The pension fund is its own engine and generates a huge amount of revenue to fund the vast majority of itself despite your attempts to spin it otherwise.

    i implore all readers to see through this. He is saying that if your employer gives you matching contribution to your retirement plan and your plan yields significant returns on your investment that the employer should be able to count that as money they gave you.

    you get $50,000 over 20 years from your employer
    you invest it in a retirement plan and the return is 1 million
    mcmahon is saying the employer gave you 1 million dollars. FALSE the employer actually gave you 2500 a year average for 20 years toward your retirement.

    Comment by Joe Dunphy — February 20, 2013 @ 8:54 am

  10. If McCall did not stop employee contributions to the pension fund it would be in much better shape with a lot less concerns about its future to support retirees.
    You cannot stop feeding the baby — it will starve.
    Pension reform did not address this issue.
    In my opinion, there was no reform only a new Tier VI that will be over ridden with Tier VII in another 5 years.
    All tiers, including Tier 1 & 2, should contribute until they cease working for the public sector.

    Comment by Kate — February 20, 2013 @ 1:50 pm

  11. Let us not forget about the Raiding of the Pension fund in the 80’s. When the legislature took money to balance the state budget and never re payed it.Most of these retirees had just started working and the money the pension fund lost on growth it would have earned.Stop attacking the workers and put the blame where it belongs. Management of the fund and owning what they bargained for while the workforce took zero raises to get where they are today!!leave hard working peoples pensions alone!!!!Every tax payer out their could have taken that test and applied for most of the entry level Jobs 20-30 years ago but nobody wanted these jobs because privet sector was doing very well. Why don’t we concentrate on get jobs back in NY state that left for Mexico,China….Hears a real good one why Don’t we stop supporting illegal immigrants.that should save us plenty

    Comment by O'Donnell — February 20, 2013 @ 6:22 pm

  12. If there had been a minimum employer contribution of say 3%, like the employees contribute, instead of no contribution or employer contribution credits during the time the market thrived, you also would not be seeing the employer contributions being as high as they are now. I agree with Joe. These people earned these pensions, pensions are part of the incentive that lure people into public sector work. It certainly isn’t for the great working conditions or status.

    And to compare Sen Marchione’s salary to the average capital district wage is also very disingenuous. Should the comparison be to folks with similar education and experience? I suspect if that comparison were made, Marchione’s salary would pale in comparison.

    And why this rush to diminish retirees benefits? Is it because we want retirees to need public assistance in their later years, at tax payer expense? That way you can still support them with government money but at least maybe make them fell a little badly about needing the public assistance after a long working career? We should be working to be sure more, not fewer, folks will have pension benefits in retirement.

    Remember the old, now out of date approach to retirement being supported by a 3 legged stool - pension, savings and social security? How does a 2 or 1 legged stool work?

    And the DC plan, if funded correctly, is no cheaper than a DB plan according to a lot of credible research. The primary difference is that a DC plan takes the investment strategy out of the hands of the professionals and puts it into the hands of those who have little knowledge or experience with investing.

    Comment by Garondah — February 21, 2013 @ 8:09 am

  13. Pensions should be for retirement from working only. A defined contribution plan letting people control their own finances is the answer to the Pension crisis

    Comment by roger scheiber — February 26, 2013 @ 7:58 pm

  14. “roger scheiber” because a defined contribution plan has worked so well to this point right?

    Pensions are fine. If you are against them then feel free to pay a public employee anywhere from 10-50% more and in some rare cases far more than that. You can have my pension today if you want to bump me to the industry standard for what I do. if you dont like those terms… ill keep my pension.

    Comment by Joe Dunphy — February 27, 2013 @ 3:41 pm

  15. Garondah nailed the big reason for pushing people into 401ks etc. It had far less to do with cost than it did with wall street being able to get their greedy hands on retirement money by picking off the individuals from the herd rather than having highly trained professionals handling the investments

    Comment by Joe Dunphy — February 27, 2013 @ 3:43 pm

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