Governor Cuomo And The NY Post - In Search Of A Pension Crisis That Doesn't Exist

Guest Post By Harris Lirtzman, former Director of Risk Management for the New York City Retirement Systems in the NYC Comptroller's Office from 1996-2002 and former Deputy State Comptroller for Administration from 2003-2007.

A few fun pension facts may be useful before teachers all over the City start pulling their hair out over comments made recently by Governor Cuomo or the New York Post about teachers' pensions.

New Jersey, Illinois, Michigan and Rhode Island are the states with the most significant actual pension problems, verging on "crises," caused almost entirely by years and years of the state failing to make mandated minimum employer contributions to keep their pension systems solvent.  New York State and New York City are awash in cash as tax revenues from soaring sales of residential and commercial properties roll in and personal income and sales tax proceeds exceed every recent projection and are making current contributions to their pension plans.

In 2013, the New York City Teachers Retirement System (TRS) was funded at approximately 63% of accumulated retirement benefit obligations and earned 11.9% on its $38.3 billion investment assets.  In 2013, The New York State Teachers Retirement System was funded at approximately 88% of accumulated pension obligations and earned 13.7% on its $82.7 billion investments assets.  There is no pension "crisis" in New York City or New York State that would warrant, even by the Post's own credulous standards, the sort of panic that such an article will engender.

No politician in New York City or New York State will take on public pension fund systems directly by attempting to reduce the benefits paid to current retirees or accruing to current employees.  They cannot do that because pension benefits are a constitutional obligation of the State of New York and a contractual obligation of the City and State as employers.

The only time that a state constitutional protection has been abrogated other than by some change in the constitution itself occurred two years ago in Detroit, when a federal bankruptcy judge, relying on long-standing precedent, ruled that the Michigan State constitutional protection against the diminishment of already accumulated pension benefits does not apply when a municipality of the State, in this case, Detroit, declares bankruptcy.

We all need to remember that even during the fiscal crisis of the 1970s, New York City did not go bankrupt.  It came very close to missing a payment that would have triggered a default on its bonds (which is very different than bankruptcy) but it did not miss that payment partly because the City's very own pension funds agreed to help the City make that payment and avoid bankruptcy.

There is some concern that our pensions will be put at risk if the referendum in 2017 about convening a state constitutional convention passes but the referendum in 1997 failed 62-38% and there are other reasons to doubt that the next referendum will succeed—the primary one being that even the folks whose purposes may be served in part by calling a convention are likely to fear the larger damage that a convention might cause them.

The really important question that New York City teachers should be asking themselves, and should be asking the three UNITY members who sit on the TRS board, is why the City and State funds, both operating under the same state laws and regulations, have such different funded ratios and investment returns.  A teacher who works for the City has a pension benefit that is only three-quarters as secure as a teacher who works anywhere else in the State and belongs to a pension system that earns 13% less a year less on its investments than does the State system.  The answer is complex but in its simplest form will be instructive to anyone who wonders exactly how the UNITY caucus manages the oversight of our pension plan: the UNITY board members agreed fifteen years ago to a pension accounting gimmick that allowed the Giuliani Administration to grab some of our pension funds in return for a short-term gain for members but which put the City TRS at a long-term structural disadvantage compared to the State TRS where no pension grab ever occurred.

The argument will now regularly be made, and the Post, as usual, is in the vanguard, that there is a "pension crisis"--just as the education reformistas set up the public for their privatization of the public education system by creating an "education crisis" as far back as 1983 with the publication of "A Nation at Risk."  The "pension crisis" will be framed as "You, the people of New York City and State, have a 'pension crisis'.  You cannot afford to pay both the annual employer contributions required to keep the pensions of your greedy public employees agreed to by your grasping public officials funded at reasonable levels and the current costs of government, especially police, fire, sanitation and other public health and safety obligations.  You must now make a choice and you must choose your own current welfare." 

Short of the bankruptcy of the City or the State, those of us who already belong to anything up to Tier 4 have a full defined benefit pension plan.  Tiers 5 and 6 have all the trappings of a defined benefit plan but are not nearly as comprehensive.  The next two or three tiers, which will come in rapid succession, are likely to begin the transition from defined benefit to defined contribution retirement plan so that the unlucky new employee covered by a Tier 10 will have nothing to show for 40 years of public employment.

The "pension crisis" generation machine is revving up.  If teachers and other public employees and their unions are as feckless in the protection of their pensions as the UFT and NYSUT now are in their battle with Andrew Cuomo and the "reformistas" then they will deserve to lose their pensions and they will lose them.