Pensions are basically a pay check provided to retirees, in this case from public sector jobs. Under the current public system those with pensions get a check every year for as long as they live (unlike many private sector 401K plans where you have an amount you’ve saved and that’s all).
There’s an understanding that many employees who get pensions have some of our state’s most important and often dangerous jobs: teachers, firefighters, and policemen. They deserve to be compensated for what they do. They teach our kids and protect our communities. But what’s there to teach and protect if we can’t afford to have kids or maintain our communities? The state can no longer afford to support these public sector pension plans.
Pensions and benefits used to compensate for low salaries in public sector jobs. However, public sector employees are no longer making less than those employed in the private sector. In many cases public employees are making more. In 2009 federal civil servants earned an average of $123,000 in pay and benefits. Private employees only made an average of $61,000 in total compensation that year. Public employees with pensions can also afford to retire earlier, garnering their pension checks much sooner than private sector employees could even think about dipping into their 401K’s.
Today tax payer burdens are especially exacerbated by the recession. New York State’s own Common Retirement Fund (that holds the money that pays for pensions) lost $40 billion in 2007-2008. New York State is responsible for keeping the third largest pension fund in the country afloat. Yet, employees only need to contribute 0-3% of their salaries to their retirement plans where employers (largely state and local governments) must find a way to dole out nearly 16% of those salaries. When asset returns are low (like during the recession) it is the taxpayer who is stuck paying the difference.
The pension system does not necessarily need to be scrapped, but it does need to be adjusted. Employees need to contribute a higher percent of their own incomes to start. They should also not be retiring quite as early as they have been. New York tax payers cannot afford it. These defined benefit plans don’t need to remain the only option to public employees either. Defined contribution plans, like a 401K, would encourage employee participation and allow those who do not decide to spend their entire careers in the public sector to take their plans with them.
Our public employees deserve to be compensated for what they do. But New York tax payers do not deserve to be punished in the process. Public benefits were created to make public and private compensation more comparable. Compensation needs to be comparable again. The pension system must be redesigned to be predictable and affordable for the best interest of every New Yorker.