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Editorial: Pension plan is eminently fair

New York State Gov. Andrew Cuomo delivers the

New York State Gov. Andrew Cuomo delivers the 2012 New York State Budget at The Egg, in Albany, N.Y., Tuesday, Jan. 17, 2012. (AP Photo/Stewart Cairns) Credit: AP Photo/Stewart Cairns

Union leaders are reacting to Gov. Andrew M. Cuomo's entirely sensible proposal to reform retirement plans for future public workers as if they included a provision to harvest their member's organs for profit. They're acting as if traditional pensions are a birthright, even for workers not yet hired, or born.

"This legislation, if enacted, will throw the widows and children of future firefighters killed in the line of duty under the bus," proclaimed Uniformed Firefighters Association President Stephen J. Cassidy.

In fact, the new pension tier Cuomo outlined this week achieves two unlikely accomplishments: It creates large savings for public employers, yet remains generous to future employees.

The plan would offer a choice between a traditional pension and a 401(k)-style program, but only for future hires. Public employees in this state stay in the pension tier in place on the day they're hired.

Those who opt for the defined benefit in this new Tier 6 would get pensions 16 percent smaller than in the current system. For example, a worker in Tier 5 for 30 years who has a final salary of $70,000 gets a pension of $42,000 per year. In Tier 6, it would be $35,000, and unlike now, overtime and bonuses would not be used in setting the pension.

Tier 6 participants wouldn't be eligible for retirement at 62, as in Tier 5, but would have to be 65. And they'd have to kick in more; the current employee contribution is 3 percent, but Tier 6 employees would pay 4, 5 or 6 percent of their pay, with the highest-earning employees paying the most. The contribution level could also go up and down -- just as the pension bill does for counties and towns -- as the investment return of the pension fund soars or sinks.

New employees who opt for the 401(k)-type plan would get an automatic employer contribution of 4 percent of their pay, and as much as 3 percent more as a match if they contribute that much themselves. Their plans would also be portable, and vest after one year. Currently, pensions vest in 10.

Over 30 years, Tier 6 would reduce retirement costs by 50 percent, saving New York City $30 billion and public employers outside the city $83 billion. It would also allow prudent workers to enjoy comfortable retirements, though those who opt for the 401(k) would be wise to kick in at least the 3 percent their employers will match, just as they would into the traditional pension.

Experience has shown that people often mismanage their 401(k)s. But the frenzied opposition by union leaders is a huge public relations error. Tier 6 will offer public employees, via the pension or the 401(k), a far more generous retirement than most private sector workers footing most of the bill look forward to.

Many private-sector workers -- with little job security, no pension and either no 401(k) or a smaller employer contribution than this plan provides -- are weary of hearing about the "rights" of public workers. People are losing their houses because they can't pay the sky-high taxes that support the benefits of public workers. The tide has turned.

Tier 6 is a step toward bringing public retirement plans in line with the real world, and via the 401(k) portion, setting the state on a path to a retirement plan with predictable obligations. It may turn out be too generous -- and unions may view it more fondly when they're fighting Tier 7.