Tuesday, March 13, 2012

New York Pension Battle Brewing?

Henry Goldman and Freeman Klopott of Bloomberg report, NYC’s Bloomberg Pays for TV Ads Backing Cuomo’s Pension Overhaul:

New York Mayor Michael Bloomberg, calling pension costs a “ticking time bomb,” said a coalition of local officials will begin a statewide television ad campaign urging lawmakers to cut retirement benefits for future workers.

“Too often in Albany, it is only the special interests who are heard; we want to make sure that the people are heard,” Bloomberg said today at a breakfast sponsored by the Long Island Association, an 85-year-old organization of business groups, unions, nonprofits and government agencies representing Nassau and Suffolk counties, which have each declared fiscal emergencies.

Bloomberg, a 70-year-old independent, spoke in support of a pension overhaul proposed by Democratic Governor Andrew Cuomo, 54, that has run into resistance in the Legislature. Yesterday, the Democratic-led Assembly and the Republican-controlled Senate each approved budget proposals omitting it. Cuomo’s plan, which would affect only future employees, would create a voluntary “defined contribution” retirement benefit similar to a 401(k) plan.

Bloomberg, who heads New York Leaders for Pension Reform, a bipartisan group of 26 mayors and county executives seeking pension-law changes, intends to pay almost all of the “substantial” cost of the ads, said Marc LaVorgna, a spokesman. He declined to say how much money would be spent on the spots, which will begin airing this week.

Labor Resistance

Vincent Alvarez, president of the New York City Central Labor Council, said traditional pension funds give workers more security than individually managed retirement plans, providing expert money managers and spreading out risk over large numbers of workers during a long period of time.

“An individual account, where a person has to fund his own retirement, that worker has to save at a much higher level,” Alvarez said in an interview. His group represents 1.3 million public and private-industry workers.

The Bloomberg-financed ad campaign follows a similar spate of commercials produced by the Committee to Save New York, a business-backed group formed to support Cuomo’s initiatives. The commercials warned of “massive” layoffs if pension changes aren’t enacted.

In New York City, pension costs have soared almost 600 percent to $8 billion this year from $1.2 billion in 2002, Bloomberg said.

“You’ve seen that same level of growth in pension costs here on Long Island -- only worse,” he said, citing statistics showing pensions increasing 865 percent in Nassau County and 904 percent in Suffolk in the past 10 years.

The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

Democrat and Chronicle also reports, Unions, local governments spar over pension reform:

Public-employee unions on Tuesday railed against proposed cutbacks in pension benefits for new workers, while government leaders warned that retirement costs are crushing local budgets.

As the state faces an April 1 budget deadline, the battle is growing over Gov. Andrew Cuomo’s proposal to add a less generous pension tier for new public workers.

Hundreds of firefighters rallied outside the Capitol, warning that a new pension tier would jeopardize future workers’ ability to retire. Some unions held a brief protest outside Gov. Andrew Cuomo’s office to knock his plans.

“It’s another assault on labor. It’s going to diminish the quality of people we get on the job, the quality of life after retirement,” said Byron Gray, president of the New Rochelle Uniformed Fire Fighters Association in Westchester County.

Meanwhile, local government leaders will begin running ads Wednesday across the state in support of Cuomo’s push, said New York City Mayor Michael Bloomberg. Bloomberg, in a speech on Long Island, said local governments can't keep up with the growing costs of public pensions.

“If our state legislators fail to act, cities and counties will be forced to raise taxes, lay off police officers, firefighters and teachers,” the ad states. “We can do better.”

Unions were already running ads in opposition to Cuomo’s proposal, while mayors and county executives have come to the Democratic governor’s aid and formed New York Leaders for Pension Reform. They estimate pension costs in New York have increased from $1.7 billion in 2002 to $12.5 billion this year.

Cuomo is proposing a new Tier VI pension level that would increase contributions from 3 percent of a new employee's salary to as much as 6 percent. The retirement age would increase from 62 to 65. It would also give employees the option of a 401(k)-type system.

Cuomo estimates it would save $83 billion for local governments over the next 30 years. Cuomo said Tuesday that without pension reform, public employees would face layoffs because governments can't afford the current costs.

“Here's the nightmare that's driving pension reform: Cities and counties in this state could go bankrupt,” Cuomo said on the public radio show, The Capitol Pressroom.

At a news conference, union leaders said Wall Street is to blame for the pension woes. The state Legislature should give the state attorney general the power to go after Wall Street fraud under the sweeping Martin Act on behalf of the state pension system, the unions proposed.

The settlement money would benefit the pension system, the unions said. The state’s pension system, overseen by Comptroller Thomas DiNapoli, has had to increase contribution rates for local governments mainly because of steep declines on Wall Street in recent years.

“We believe the attorney general should be able to sue on behalf of public pensions for losses due to fraud,” said Mario Cilento, president of the AFL-CIO, the umbrella group for the state’s unions. “It’s in the public’s interest because those losses increased pressure on local and state governments. If we can get some of that money back, it would alleviate a lot of that pressure.”

Cilento and other union leaders said they see little room for compromise with Cuomo on a new pension tier, saying Cuomo wants to go after middle-class workers but it's Wall Street they blame for the state's pension troubles.

David Holleran, president of the IAFF Local 729, the city of Binghamton’s firefighters’ union, said pensions should be preserved for future employees. He said they would face the same risks on the job as current firefighters.

“We’re worried about the guys and the girls who will be doing the job after us. We want them to be protected like we are now,” Holleran said after the rally.

Assembly Speaker Sheldon Silver, D-Manhattan, said there are “meaningful discussions” that are ongoing about pension reform, but he didn’t elaborate.
Who is right in this brewing pension battle? I'm afraid to say that both parties make good points. Mayor Bloomberg and Governor Cuomo see the costs of pensions skyrocketing and they're absolutely right to make the case for higher pension contributions.

But labor unions are right to see this as an assault on labor. Why? Because pension reforms are calling for employees to shift out of a safe, secure defined-benefit plans into a less secure, volatile 401 (k) defined-contribution type plan.

Newsday published a letter by Howard Weitzman warning of the danger of altering pensions:

Newsday's editorial supporting Gov. Andrew M. Cuomo's call for pension reform was right on the mark ["Pension myths distort debate," March 8]. It is clear that taxpayers have reached their breaking point. However, the plan to switch from defined-benefit plans (stable government pensions) to defined-contribution plans (forms of 401(k)s) for new government employees needs to be carefully examined.

Retirements were supposed to rest on three legs: pensions, Social Security and private savings. To encourage private savings, the government created 401(k)s and individual retirement accounts. These voluntary, tax-deductible plans were never meant to replace pensions, but to supplement them.

We all know that many corporations are eliminating their pensions in favor of 401(k) plans. But we should be pushing employers to adopt more traditional pensions.

There are many reasons why 401(k)s and IRAs may not provide reasonable security in retirement. First, they transfer the risk of investment losses to the employee. But faced with a wide choice of investment vehicles, employees tend to invest too conservatively, leading to lower yields. This will prevent them from reaching their retirement goals. Some will take on too much risk, leading to the same result. And since these plans are voluntary, some will not invest at all. Government pension funds tend to get higher yields because of their size and lower expense ratios.

Also, 401(k)s and IRAs have much higher fees, leading to much lower investment returns over a long period.

But the main reason for not switching from pension plans is that the ability to retire with reasonable security should not be based on the state of the financial markets at any particular time. Markets go up and down, but over the long run, they should produce a reasonable return. The problem is that individuals don't retire over the long run, they retire in a specific year. If the markets are down, that could ruin their plans.

For example, many baby boomers are retiring now. Those with 401(k)s and good financial advisers would have planned for a 7 percent annual return. That means money must double every 10 years to reach their goals. The markets are just now returning to levels reached 10 years ago. Many 401(k)s are even lower than they were in 2002. How can these people retire now?

This is an excellent letter which makes a solid case for boosting defined-benefit plans. My biggest concern is that we give the banksters and sharks that caused the crisis bailouts, bonuses and free money, and now we're asking teachers, firemen, police officers, public and private sector workers with DB plans to switch over to 401 (k) type plans, effectively asking them to forgo a safe and secure retirement and try their luck in this wolf market.

This is pure insanity. It will only accelerate pension poverty. A teacher in Ontario wrote me an email recently, telling me he was thinking of pulling his money out of the Ontario Teachers' Pension Plan because he was concerned about the deficit and thinks they will cut benefits in the future. I told him not to pull out and I will give the same advice to anyone else who is thinking of pulling out.

Below, listen to a fireman tell it like it is. Every hard working individual who contributes to a pension deserves to have peace of mind and retire in dignity and security. It's an achievable objective but to attain it, stakeholders need to get the funding and governance right.

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