Letter: Pension math should add long term
State Comptroller Thomas DiNapoli has said in a report that local sales tax revenue on Long Island grew at a slower rate last year than in other parts of New York. (Feb. 23, 2011) Credit: Howard Schnapp
Newsday's editorial supporting the introduction of a Tier 6 pension plan ["Pension plan is eminently fair," Jan. 20], while seeming to make a reasonable argument, would create significant hardship for employees and produce none of the envisioned gains to taxpayers.
The underlying rationale for Newsday's opinion is that public pensions are too expensive. While this is true, defined-benefit plans are based on long-term projections, not on short-term economic conditions. What is too expensive today is cheap tomorrow. So to make decisions for tomorrow based on conditions today is an inaccurate assumption.
The average actuarial assumption is that interest rates over the long term are annualized to 4 percent a year over the standard 20-year projection. Consequently, in good years when returns are exceptional, such as occurred early in the first decade of the 21st century, as well as in the two years immediately before the recession, public entities put in little or nothing, as capital gains and interest provided most of the required income.
Now the economy is not generating those generous returns, and they have to be made up by public entities. Short-term conditions of high unemployment and low tax revenues place a strain on taxpayers. But the strain will be removed over time.
All that conversion to a 401(k)-type plan would do is reduce public employee benefits while saving nothing for the taxpayers over the long term, because the aggregate pension reserve will not change. Thus, the public employee unions are correct, and Newsday is not.
A second rationale for Tier 6 is either jealousy, or misery wants company. True, most employees in the private sector don't have defined-benefit plans. But this is not a reason to reduce the benefits of future public employees. The fact remains that if defined-benefit plans are good for employees (which they are), Newsday should be advocating that everyone have one.
Yes, tweaks can and should be made in interest-rate assumptions, but the high-interest rate assumptions actually benefit public entities by requiring lower contributions. If Newsday's editorial writers actually understood the role of interest-rate assumptions, they would be advocating for lower, more reasonable assumptions. But that would actually increase the rate of contributions required by public entities.
Newsday's editorial position panders more to jealousy than it does to sound pension planning, and was properly rejected by state Comptroller Thomas DiNapoli.
Alan R. Lichtenstein, Commack
Editor's note: The writer is a retired assistant school principal.
