New York Follows Disturbing Trend, Cuts Public Pensions
Mar 22, 2012
In the continuation of a troubling trend in the United States, New York became the latest state to dramatically overhaul its pension plan against the wishes of its public employees. Last week the state legislature passed a series of measures expected to save the state $80 billion over 30 years while cutting retirement payments guaranteed to state workers.
New York, which runs one of the country’s largest public pension plans, is now at the center of a national fiscal trend. Although reports have found that most states have the money in place to cover pension benefits for the next decade, many have failed to fund legally guaranteed pension promises made to people who retire after that period.
When the market collapsed in the US in 2008, state pension fund balances declined, obligating state governments to raise more money in the future. States that want to fix this problem have three options: pay larger sums into their pension funds, raise taxes, or trim benefits. Most, unfortunately, have opted for the latter.
Since 2008, some 43 US states have reduced pension benefits for new employees. Pension budgets comprise about three percent of state budgets on average. But with chronic underfunding and baby boomers just beginning to retire, state pension analysts expect pension financing to consume as much as 13 percent of public funds in the worst-off states within a few years.
Public employee unions and some pension analysts agree that while some reforms might be needed, post-recession budget woes in many states are being used as the grounds for securing long-desired cuts in public worker benefits. The fact that a Democratic governor in a strong union state like New York would push for these reforms demonstrates just how big of a fiscal flashpoint public pensions have become.
Part of the problem is that lawmakers have often made politically expedient but unfunded promises to public employees that have improved pension benefits instead of offering higher wages or raising taxes. Public pensions have suffered from stock market collapses at the beginning and at the end of the 2000s. In 2008, the pension fund cuts began.
New York’s final pension reform deal bumped the age at which workers can retire to 63, increased the amount that employees must contribute toward their own retirement and created a sliding employee contribution scale. It also reduced the income that a state or local government pension will guarantee to retirees.
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