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The Sham Pension Crisis

By Jon Melegrito
Rhode Island pension rally
Workers rally for pension in Rhode Island in response to targeted attack by politicians. (Photo by Susan Petersen)

Reacting to horror stories that paint a dire picture of public pension funds as unaffordable and unsustainable, state legislatures nationwide have embarked on sweeping changes and reforms to public retirement plans.

Politicians are blaming an imaginary herd of retirees making six figure pensions for budget deficits, perpetuating the pension crisis theory.

“Amid all the sound and fury, it can often be difficult to separate fact from fiction,” says New York State Comptroller Thomas P. DiNapoli, the sole trustee of one of the largest state pension funds in America. He points out that less than one-half of 1 percent of New York retirees receive pensions exceeding $100,000. The average annual New York State pension for state and local government employees is $18,300.

“The vast majority of state pension plans are sustainable for the long term,” DiNapoli declares. A study by the National Association of State Retirement Administrators confirms DiNapoli’s assertion: Pension contributions from state and local employers amount to just 2.9 percent of state spending. DiNapoli also defends traditional pensions as a basic tenet of retirement security and blames Wall Street’s collapse for cutting into pension holdings.

Retirement Security Threatened

Approximately 40 states have already made significant changes that they claim decrease costs and reduce their pension liabilities. Proposals include increasing employee contributions, suspending retiree COLAs, switching new hires to a 401(k)-style investment plan and extending retirement ages.

Rhode Island recently created a mandatory hybrid plan that reduces the traditional pension benefit, known as a “defined benefit,” and adds a higher risk 401(k)-style defined contribution component.  A similar proposal has been suggested in California. Other states considering significant pension cuts this year include Florida, Illinois, Iowa, Kansas, Maine, Minnesota, New Hampshire, New Mexico, New York, Ohio and Wisconsin.

In his State of the State address in January, New York Gov. Andrew Cuomo said he’s determined to push through a pension overhaul. Although he didn’t provide details, he is expected to propose excluding overtime from final average salary and extending the retirement age for new employees from 62 to 65. Cuomo’s move to limit retirement benefits has angered many public workers, especially those in patient care and service occupations.

Workers in physically demanding jobs may not have the ability to continue working for so long. Moreover, the shorter life expectancy of lower income workers also justifies lower retirement ages.

Workers Deserve Secure Retirement

“We serve our communities every day, even under life-threatening conditions like those we faced during Hurricane Irene,” says Harry Van Etten, a highway maintenance worker and a member of Local 968 (New York Council 66). “We often work overtime until the job gets done. For all our hard work, we shouldn’t be robbed of the safe and secure retirement we have rightly earned.”

“Americans need more retirement security, not less,” says AFSCME Pres. Gerald W. McEntee. “Our pension systems have continued to be an irreplaceable source of economic security for middle-class, working families. We have a responsibility to make sure retirees get all the benefits to which they’re entitled.”