Driven By Big Business?

Unions Blast Faso's 401(k) Proposal

By REUVEN BLAU

The two largest state-employee unions last week blasted Republican gubernatorial candidate John Faso's proposal to cut the state's fixed costs by replacing defined public pension plans with less secure salary deferred retirement programs commonly used in the private sector. "We see what he's proposing as really keeping up the drumbeat of the business community to get out of the responsibility for pensions," said Stephen Madarasz, the Civil Service Employees' Association's chief spokesman.

JOHN FASO: Pension idea rankles unions.

Goodbye Pensions?

Mr. Faso's spokeswoman, Susan Del Percio, defended the proposal, which would need legislative approval. "Talking about these types of ideas [is] important for New Yorkers across the state," she asserted during an Aug. 11 phone interview. "Because we must find ways of keeping our taxes low and being competitive."

The Bloomberg administration has been seeking to have future employees work longer and contribute more to the pension system while receiving a smaller retirement benefit.

But Mr. Bloomberg's chief spokesman, Stu Loeser, declined to comment on Mr. Faso's proposal. Mr. Loeser stressed that many city workers already have 401(k) plans that are used to supplement their defined pensions. "On the one hand we are always looking at different and better ways we can compensate people and help city employees plan for their retirement," he added during an Aug. 10 phone interview. "We are also mindful that these changes must be made as a matter of law, through Albany."

Issue on the Table

He noted that the issue is currently being discussed by District Council 37 officials and city negotiators in a special labor-management subcommittee established as part of the union's new contract announced last month. That deal did not involve any pension concessions. "We can't comment on the specifics," Mr. Loeser said.

The 401(k) plan, which is named after a section of the U.S. Internal Revenue Code, allows workers to save for retirement while deferring in come taxes on the saved money or earning until withdrawal. But the contributions to the profitsharing plan are voluntary and neither benefits nor contributions are defined, making the plan far riskier than current pension programs in place for state and city workers.

They have a defined pension with a fixed formula, which pays out regardless of how the plans' underlying assets perform.

Risk Conundrum

Under Mr. Faso's plan, employees would invest a certain amount of their wages and the state would contribute approximately 7 percent of salary. "There would be guidance available to workers," Ms. Del Percio said. "Certainly there are ways to be more conservative or throw in a little risk, especially when you are younger."

Mr. Maderasz, however, pointed out that many individuals join the state work force despite the low salaries because of the fringe benefits, which include a defined pension. "You know what you are going to be able to count on at the end of your career," he said. "The 401(k) is subject to the vagaries of the stock market. You are not guaranteed a result."

He said that individuals who invest in riskier stocks "can get a higher return, but you can also lose money."

Ms. Del Percio noted that employees who leave the state work force will be able to transfer their 401(k) plans. "They know they have something they can at least take with them," she said. "It gives them a lot of mobility, and it helps municipalities predict pension costs."

Bill Henning, a vice president of Communications Workers of America Local 1180, disagreed. He called Mr. Faso's proposal "a very bad idea," charging that it was another "corporate scheme to shift the risk of post-employment livelihood."

'Nest Eggs at Risk'

Public Employees' Federation President Ken Brynien also blasted Mr. Faso's proposal. "I'd much rather spread the risk than have individual employees have their own nest eggs put at risk," he argued.

But Ms. Del Percio maintained that it would eventually help the state reduce taxes. "The workers get hurt too, because their property taxes go up," she said, noting that municipalities would have the ability to opt into the plan under the proposal.

Mr. Henning acknowledged that the plan would lower costs. "The question is to what end?" he asked. The proposal, he charged, shows that Mr. Faso doesn't care about what happens to state employees when they retire. "It is just a way of saying to the worker, 'you are just not worth guaranteeing any standard of living once you leave us. You are a disposable work force.'''

Mr. Henning added, "It's an attack on all workers."