|Public Sector Pension Costs|
The Mandate: In recent years, the pension cost crisis has revealed the underlying imbalance between the high cost of New York's public pension benefit structure and the limited fiscal capacity of local governments and their taxpayers. The state and its local governments operate under what is known as a defined benefit plan where employees are guaranteed a certain level of benefits financed primarily by state and local employer contributions to the retirement system. Over the years, these benefits have become increasingly more difficult to sustain.
The Cost: Over the years, as pension benefit outlays have increased and pension fund assets have declined, pension costs have become increasingly more difficult to sustain. A December 2010 report by the Empire Center of New York State Policy estimates that state and local employer contributions will more than double by 2016, adding nearly $4 billion to annual taxpayer costs. When combined with other mounting fiscal pressures on local governments, these increases in pension costs have led, and will continue to lead, to further increases in property taxes and cutbacks in essential municipal services.
Although local government employers will experience a slight decrease in contribution rates in 2015, these rates are still 7% higher than 2013 rates, and 90% (ERS) and 45% (PFRS) higher than average rates over the past 40 years. Additionally, while the less expensive Tier 6 will bring about long-term savings, something needs to be done to equitably provide relief in the near-term.
The Solution: Our state leaders should be commended for establishing a new retirement tier with more affordable retirement benefits for new hires in both the Employees' Retirement System and the Police and Fire Retirement System. This new tier contains many of the elements the Conference of Mayors has been calling for, including: 1) requiring an employee contribution for the duration of their employment; 2) increasing the minimum retirement age at which an individual can begin to draw down even a partial pension benefit; and 3) revising the way the final average salary is (FAS) is determined by considering more than three years and taking into account only base pay. This much-needed and long overdue pension reform is clearly a significant step toward helping local governments address their rising personnel costs. Unfortunately, it will do little to assist municipalities in the short-term and, as a result, we must continue to support finding ways to ease the immediate impact of rapidly rising pension contribution rates. To accomplish this, the state must undertake a thorough analysis of the benefits, funding methodology and oversight structures of our public pension system.