New York State’s public pension system is not in terrible shape, which normal people would find encouraging. Yet government employee unions see this stability as a sign that it’s time to undo the reforms that made all this possible.
Union bosses are planning a rally on March 8 to demand that New York retroactively increase pension benefits to undo reforms made in 2012. The benefits are still generous, but organized labor is now claiming that the changes have led the state to abandon “the promise of a dignified retirement.”
What changed?
The original pension that was available required no employee contributions and allowed for full retirement benefits at age 55, based on the highest salary level achieved. Since that’s completely insane, legislators have been making reforms since the 1970s to cap benefits, raise the retirement age and require modest employee contributions.
The latest round of reforms, which apply to employees hired after 2012, include a five-year vesting period, employee contributions of 3 percent to 6 percent, benefit levels based on the average of the five highest consecutive years of salary and full retirement at 63. These fixes are saving taxpayers more than $1 billion per year.
Unlike some others, New York public employees receive Social Security benefits from the federal government on top of their pensions from the state government. State pension benefits are also not subject to state or local income tax.
Any private-sector worker in America would jump for joy at such a generous package. But public-sector unions in New York argue that these benefits are making it harder to hire, even as the number of state and local government employees has grown by over 70,000 workers in the past four years, and the average salary for full-time educators is over $20,000 above the national average.
New York always faces, and sometimes indulges, the temptation to boost pension benefits when the stock market does well. Higher capital gains means a lot more revenue for the world’s financial capital. The past few years of performance made unions greedy for more.
Yet this is an opportunity to shore up the system rather than stress it. While neighboring New Jersey is swamped with pension debt and New York City has challenges of its own, the Empire State’s retirement system is well funded compared to other states for most public employees. The reforms that the unions want to undo are why.
New York’s state constitution says that pension benefits cannot be “diminished or impaired.” In practice, this means that pension increases, once enacted, cannot be overturned for current employees. This precedent is so ironclad that state legislators who have been convicted of felonies continued to receive their pensions in prison.
It also means that Albany is locked in to keep funding those increases with taxes on working people for as long as the retirees live. Reversing past reforms could ultimately cost New York taxpayers over $100 billion, according to some estimates.
Neighboring Connecticut is much smarter about how it deals with sugar highs from capital gains. The “volatility cap” in state law sets a limit on how much tax revenue from investment income politicians can spend in a given year. Revenue in excess of the cap must be deposited into a rainy-day fund, and once that’s fully funded, it must be used to pay down pension debt. Since 2020, Connecticut has paid down over $10 billion in pension debt due to this cap.
New York can be responsible like Connecticut and use its investment tax collections to make fiscal reforms, or it can follow New Jersey down the pension-paved road to state insolvency. Government unions would cheer, but there’s no turning back.
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