Need Pension Reform

To the Editor:

Mayor Michael R. Bloomberg has demanded that new employees get lower pensions than do current workers, in a bid to rein in spiraling costs. His Commissioner of Labor Relations, James F. Hanley, hopes to win concessions on pensions. A tentative labor agreement calls for the city and District Council 37 to set up a subcommittee to discuss making pension changes. This is a good first step toward pension reform.

In New York State, the Legislature, with recommendations from other elected officials and special interest groups, determines public pension policy. From the late 1910s to the early 1960s, governors and mayors have used committees to study pension plan structure and investment of retirement systems' assets. From the late 1960s to the early 2000s, their committees studied financing the retirement systems and adjustments to retirement allowance because of inflation. By reviewing the work of some pension committees, we can understand the progressive development of pension policy.

In the 1970s, the city struggled for financial survival. Mired in economic problems - debt service costs, social welfare and labor costs - and tethered to a very uncertain future, the city's bankruptcy in political and financial terms was unacceptable to our leaders in government and private industry.

In 1975, Mayor Abraham D. Beame asked his Management Advisory Board to review the New York City retirement systems. Richard R. Shinn, Chairman of the Mayor's Management Advisory Board, appointed a Pension Task force to make a realistic evaluation of the required city contribution toward funding the retirement systems.

The task force consisted of seven executives from large insurance companies (Metropolitan Life and the Equitable Life), corporations (General Motors and Union Carbide), consulting firms (Martin E. Segal & Co., Inc. and Program Planners, Inc.) and a representative of the United Federation of Teachers. It also included actuaries in public and private service. The Advisory Board recommended that the city make substantially larger annual contributions to keep the retirement programs adequately funded and to discontinue the city's contribution to the Increased-Take-Home-Pay program.

During the bull market from the beginning of 1995 until the end of 1999, the U.S. stock market grew. During this period, the Dow Jones Industrial Average and the Standard and Poor's 500 Index grew by more the 225 percent. Some of the eight New York public retirement systems amassed net assets, from employer contributions, employee contribution and investment income, in excess of liabilities.

In 1999, Governor George E. Pataki announced the creation of the Task Force on New York Public Employee Retirement Systems. The task force consisted of 14 members. The public employee representatives persuaded the governor and mayor to focus on the question: what adjustments should the Legislature make to the fixed-dollar retirement allowance because inflation eroded retirees' purchasing power? Based on the task force's recommendations, the state lawmakers added a cost-of-living-allowance to the retirement allowance of eligible retirees.

During times of budget surpluses and budget deficits, individual unions have joined with elected officials in lobbying in Albany for pension changes. Public pension policy is about elected officials striking a balance between the wants of taxpayers and the needs of employees who have provided a career of government service. A committee, supported by staff with specialized experience, knowledge of the subject matter, and technical skills, should have a positive influence on pension policy.

JAMES A. BEIRNE

Editor's note: Mr. Beirne is a former Assistant Chief City Actuary. The NYS Archives Partnership Trust awarded him a grant to write about the Role of Public Policy and the New York Public Retirement Systems.