The Truth About Pensions
by Jon Melegrito | September 30, 2011
Politicians have been painting a dire picture of state pension plans as “troubled, unaffordable and unsustainable,” claiming their states are struggling to meet their contractual commitments to current and future retirees because of budget deficits. Their misguided solutions: increase employee contributions, raise the retirement age or do away with defined benefits altogether.
But all this talk of a “pension crisis” is misleading, according to New York State Comptroller Thomas DiNapoli, the trustee of the largest state pension fund in America. “I take exception to many of these mischaracterizations,” he says. “The vast majority of state pension plans are sustainable for the long term.”
Speaking in Boston, Mass. last Tuesday to the Council of Institutional Investors, DiNapoli defended traditional pensions as a basic tenet of retirement security, debunked the idea of a pension crisis and blamed Wall Street’s collapse for cutting into pension holdings.
He also dismissed claims by politicians that pension funds are “eating up state and local budgets” because they are “bloated with retirees making six figure pensions.”
In New York State, DiNapoli said, the facts suggest otherwise: Less than one-half of 1 percent of retirees received pensions exceeding $100,000, while 76 percent receive less than $30,000 a year. The average annual New York State pension, excluding police and fire, is $19,151. One in five of New York retirees – nearly 70,000 – receive less than $5,000 a year.
Noting that a recurring theme in the attacks on public pension funds is that they are “unaffordable,” DiNapoli cited a study by the National Association of State Retirement Administrators. It finds that pension contributions from state and local employees amount to just 2.9 percent of state spending. “In New York, the number is 2.4 percent of state operating funds,” he explained. “And it’s important to note that over the past 20 years, 83 cents of every dollar in benefits paid to New York retirees have come from investment returns, not employee or employer contributions.”
Later in his speech, Di Napoli said: “It’s easier to point the finger of blame at the people who receive the benefit, rather than at all the folks who engaged in the risky behavior that we’re still paying the price for.”
It’s also wrong, he added, “to use the bad behavior on Wall Street that nearly drove the world economy into another Great Depression as an excuse to rob millions of middle-class Americans of the safe and secure retirement they have earned.”
Given all the “sound and fury” about public pensions, DiNapoli notes in one of his quarterly updates, “it can often be difficult to separate fact from fiction.” We have a responsibility, he says, to make sure retirees get all the benefits to which they’re entitled.
We couldn’t agree more.
