Thursday, February 03, 2011

Mayor Bloomberg Sees the Light On Pension Reform

After doing considerable damage to the stability of the pension system over the past 8 years, Mayor Bloomberg has finally come to the realization that all of those sweeteners to the unions to seal contract deals have long-term implications that are increasingly eating into the city's budget. When Bloomberg took office, $1 out of every $28 went to pay for the pension funds.

It's now $1 out of every $8, and Bloomberg has finally come out calling for a major revision of the pension benefit system. It's sure to rankle the very unions and workers who benefited from the pension expansion, but taxpayers can no longer afford the sweetheart deals.
The mayor wants to require most new municipal workers to work at least 10 years, or double the current amount, to qualify for a pension, and bar them from receiving pension checks until age 65. Now most nonuniformed workers, including teachers, can get pension checks at age 57, and some police officers and firefighters can receive full pension checks after working 20 years, no matter their age.

New employees would also need to contribute more of their own money to their retirement accounts, according to the plan.

And Mr. Bloomberg would forbid all new employees to benefit from a time-honored practice: adding hundreds of hours of overtime at the end of their careers to balloon their final year’s pay and their pensions.

The mayor did not spare current retirees, vowing to eliminate a $12,000 annual stipend that retired police officers and firefighters get on top of their regular pension benefits.

“This reflects the dire fiscal circumstances the city faces, the devastating impact of increasing pension costs and the desperate need for aggressive reforms,” said Marc La Vorgna, a mayoral spokesman.

The mayor’s pension proposal — coming one day after a shrunken state budget from the new governor, Andrew M. Cuomo, with similar tough talk — represents a clear bid to capitalize on growing concerns about pension costs and rising anti-union sentiments, even among traditional labor allies.

Public pensions are being tightened in other states across the country where government employees, as in New York, receive far more generous retirement benefits than most private employees; many companies are eliminating pensions altogether.

But Mr. Bloomberg’s proposal also represents a departure from his own past practices. His administration has been responsible for a significant portion of the growth in city pension costs, offering generous pension sweeteners during contract negotiations and repeatedly missing opportunities to rein in spending.

Indeed, pension costs are now projected to eat up one of every eight city dollars next year, in contrast to 1 in 28 when he took office in 2002.

Mr. Bloomberg’s package could help the city save at least $200 million a year immediately, and billions of dollars more in the future. But his proposal faces a potentially major obstacle because any changes in the city’s pension system must be approved by the Legislature and the governor.

The mayor has potential allies in Mr. Cuomo and the new Senate majority leader, Dean G. Skelos, a Republican. But Sheldon Silver, the Assembly speaker, will most likely be the wild card.
One of the ways that an individual can boost their pension is to work massive amounts of overtime in their final year (or final three years, depending on which contract deal we're talking about), to result in a far higher final salary on which the pension is calculated. Eliminating the overtime from the pension calculation would result in a significant savings to the taxpayers.

That's going to run into a huge amount of opposition from firefighter, police, and sanitation unions whose members are beneficiaries of that policy. What will most likely happen is that the formula used to calculate the pension will be adjusted.

Instead of the final year salary (or final three years) including overtime, the formula would be expanded to be the final 5 or 7 years - reducing the overall compensation and resulting in a cost savings to the city, but not nearly as much as Bloomberg wants, but one that still preserves part of the benefits package promised to existing workers.

It's further interesting to note that had Bloomberg maintained pension benefits at the 2002 levels, the city would not be in nearly the financial straits it is facing. The city would be on far more solid financial footing and would have been able to weather the recession with far greater ease. Simply put, the city needs to live within its means, and increasing union benefits to win elections is a short-sighted political ploy that damages the financial stability of the municipalities.

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