I had to cut my prior post on the cost of pension enhancements short because it was already too long, and I was out of gas in any event, so I’ll finish the analysis here. To review, according to the model described in this post and present in the attached spreadsheet, I found that for those now approaching retirement from New York City, New York State and other New York local governments, the state had promised, when the employees were hired, pensions that would cost the taxpayer 8.8% of payroll for most workers, 13.2% of payroll for those in physically taxing jobs such as sanitation workers, and 28.7% of payroll for police and fire. But they didn’t set aside enough money to pay for those pensions, using the stock market bubble of the 1990s as an excuse (and still doing so a decade after it popped), as I showed in this post. In addition, the pensions were drastically, retroactively increased compared with those promised, in a series of deals between the public employee unions, representing those workers who were already or about to retire, and politicians seeking political support. At the expense of the general public, particularly those worse off, and the future, now the present. For most public employees, as this post showed, the result was pensions that, for those getting early retirement incentives, cost double what had been promised. Little of this has been paid for, and under a proposal by Comptroller Thomas DiNapoli, local governments outside New York City would not pay for another 10 years, up from the three year postponement the state legislature just passed.
So what about the cost of pension enhancements and other deals for those in physically taxing titles, police and fire? Read on.
Employees in physically taxing jobs had already been permitted to retire at age 55 after working just 25 years, and police officers and firefighters had already been permitted to retire after working just 20 years at any age. Therefore many of the deals over the past 15 years to allow public employees to work fewer years and spend more years being paid to do nothing did not affect them, although they may have benefitted from higher payouts as a result of the various “pension incentives” that have passed. Those incentives often allow workers to pretend to have worked more years than they had, allowing them to pad their pensions by increasing the payouts.
This doesn’t mean that these workers didn’t try to retire even earlier. In the 1970s, New York City’s transit system was devastated by a pension deal to allow transit workers to retire at age 50 after working just 20 years. The sudden exodus of worker drained the transit system of expertise, and the soaring cost of the larger number of retirees was offset by massive fare increases and cuts in service and maintenance. Given the importance of mass transit to New York City, this was a big part of the drastic decline in the city’s economy and quality of life during those years. For those hired later, a 25/55 pension plan was later re-imposed.
In the years since, New York City Transit’s workforce has shifted from primarily Irish to primarily Black West Indian. Tensions arose within the Transit Workers Union on the issue of racial fairness: if the Irish were able to cash in and move out, leaving the city in ruins, shouldn’t West Indians be able to cash in and destroy the city as well? A cornerstone promise of the New Directions movement, which eventually did take over the union, is that workers who had been hired with the promise of a 25/55 pension would be retroactively given a 20/50 pension instead, something no money had been set aside for. This passed the New York State Legislature without a single “no” vote multiple times, but was vetoed by the Governor.
So in 2005 the Transit Workers Union, a near monopoly in a position to extort less powerful workers, went out on strike just before Christmas, demanding a 20/50 pension plan. They didn’t get it – for now. But it is probably inevitable, and one of the measures the current group of state legislators will ram through in the hours before the state collapses and they move away, pensions in hand.
For now, however, the main differences between the pensions workers in the “physically taxing” and public safety categories were promised, and the pensions they get, are the inflation adjustment added in 2000, the elimination of the employee contribution for those with more than 10 year’s seniority passed in 2000, the explosion of higher payout disability pensions due to growing fraud and state laws allowing claims of workplace disability for health problems that have nothing to do with the job, and pensions inflated by massive overtime credited to workers in their last years on the job.
As Table 5 in the “Enhanced” worksheet of the spreadsheet shows, for a NYC sanitation worker (and presumably for other workers with 25/55 pensions), the inflation adjustment added in 2000 and the lower employee contribution would, for a newly hired employee, reduce the employee contribution to the pension by 69.0% while increasing the required taxpayer contribution by 31.4%. The necessary taxpayer contribution into the pension plan increased from 13.2% of payroll to an average of 17.3%, with higher taxes or diminished serviced required to make up that difference, forever. Since these benefits were awarded retroactively, the shortage created for each worker who retired in 2000 was $28,266. For those who retired years earlier, and had their pensions increased by large amount, that hole in the pension was larger. That too requires even higher taxes or diminished services, probably for the next two decades.
But that’s on straight time. What if the “physically taxed” worker suddenly started working 20 percent more in the years just before retirement, increasing the pay on which their pensions was based? See Table 6 for the answer. That pension “spike” increases the taxpayer cost of the pension by another 27.1%. The total is now 21.5% of payroll, not 13.2%. That is the permanent increase in the cost of pensions for the retired, not including the hole from awarding those benefits retroactively, and not including the damage from any subpar investment returns (or normal investment returns when extremely high returns had been assumed).
What if a worker had been working an equal amount of overtime throughout their career? That isn’t pension spiking. The cost of public employee benefits is so high, and in incentives for public sector managers so perverse, that they might choose to have two workers split 105 hours per week rather than have three workers split the same hours under the standard (for public employees) 35 hour work week. The bill for the higher pension costs comes later, the savings from fewer workers and credit for a smaller headcount up front. So you can’t necessarily place all the blame on the unions for evenly distributed overtime that also accrues to those about to retire.
But pension spiking, in which nearly all the overtime goes to those about to retire, is rampant in some agencies, particularly when the union is cahoots with the managers who are unionized themselves, and also eligible for paid overtime and inflated pensions. In fact, a share of public employee pension costs attributable to management may be eye opening – “supplemental” pensions for executives drained many of the dwindling number of corporations that still have defined benefit pensions in recent years. The result of pension spiking is, in effect, the state and local governments paying many $1,000s per hour for public employees to work overtime during their last year, if the future cost of higher pensions is included. And the overtime is often arranged by work shirked on straight time, and other strategies such as police officers postponing arrests until the end of their shifts.
To give one recent example, I have a cousin who is a police captain in a largish city in New York State (outside NYC) who has recent been on desk duty due to a line of duty injury. She had previously worked on budgets and they are trying to put her back, but she is fighting it because the previous time she ended up fighting with the union all the time, and the union made her life difficult. She had wanted overtime distributed “fairly” to those who wanted to work it; the union wanted it all to go to those about to retire. She would naively argue with them: “you’re a union, spreading around the money is fairness, shouldn’t unions be in favor of fairness?”
Cough.
Moving along, as shown by Table 7, the 2000 pension deal didn’t change much for police officers and firefighters, because their contributions to the pension funds had already been cut under a deal in the early 1960s. The inflation adjustment from that deal cost $17,525 per police officer, not including the huge hit from those to whom it was granted retroactively. The taxpayer contribution to police pensions jumped to 30.1% of payroll from 28.7%, once again not including the cost of those who received the benefit retroactively.
Add in a 20 percent pension spike, however, and suddenly the police and fire pensions cost 26.6% more than had been promised, as shown in Table 8.
But the real hit in recent years has been the soaring level of disability pensions, which pay out 75.0% of last year’s pay as a pension rather than 50.0%. For New York City police officers and firefighters, some of that is due to those killed or injured on 9/11 or sickened afterward. But press reports indicate that the share of NYC firefighters retiring with disability payments was already sky high before 9/11. And the state legislature has passed a series of laws that allow workers with a wide variety of health problems, however minor, to retire early with higher pensions even if they had nothing to do with the job. They are “presumed” to be job related even if they aren’t. The cost of this? Generally described as “zero” by state legislators, legislators who speak at rallies to protest service cuts, fare increases, and other sacrifices imposed on the serfs to pay for added pension costs that somehow appear.
To be fair, there is another possible explanation for the high rate of disability payments among NYC firefighters – that unlike police officers, who tend to retire as soon as possible after 20 years, firefighters stay on the job until injury or illness forces them off it. But it would require an analysis of age and years of work at retirement to evaluate that.
It is, however, certainly the case that some share of disability pensions are a product of a “beat the system” culture rather than workplace danger. This was seen in a New York Times investigation that found that on the LIRR “virtually every career employee — as many as 97 percent in one recent year — applies for and gets disability payments soon after retirement.” Many managers were also cashing in. MetroNorth, another MTA subsidiary that is a commuter railroad just like the LIRR, had a far lower rate of disability pension claims. The main difference between working at the two railroads is that MetroNorth workers are more likely to have to contend with snow and ice.
A New York public safety worker who has his or her pension spiked 20.0% by overtime and 33.0% by disability ends up with a pension costing taxpayers 88.9% more than the pension they had been promised. Nearly double, just like those regular employees who benefitted from the 1995 and 2000 pension enhancements and an early retirement “incentive.” The total taxpayer cost is 45.3% of payroll, up from 28.7%, if the money had been kicked in all along. If it had not been, and suddenly there is not enough money in the pension plan? Then you are looking at disaster, with the pension contributions having to be increased, and the workforce having to be cut, until more is being paid to former public safety workers than those actually providing public safety.
Which is where New York City is now. Which is why for the rest of the state, the state assembly has just passed Comptroller DiNapoli’s bill allowing local governments elsewhere to not pay the pension contributions required until 10 years later – when the cost has exploded more, they can’t afford it, and New York City can be made to pay state taxes for their pensions too. A bigger disaster ten years later is a great deal for members of Generation Greed who expect to be securely collecting tax free pensions while living elsewhere a decade from now.
This concludes my analysis, but it really only part of the story. New York State legislators have proposed thousands of retroactive pension enhancements in recent years, and passed dozens if not hundreds, all without letting people know about it. For example, looking through the report on police pensions to try to figure out the employee contribution for those pensions, I came upon this nugget.
You may have heard stories of “double dipping”: retired public employees who also collect a government salary, which the rules prohibit. Off the website I found this: “Effective January, 2007, retirees can earn up to $30,000 a year in the New York State public employment while still collecting their full pension. This has been increased from $27,500 a year. This law allows retirees, aged 65 or older, who have public employment in New York State, to forgo any earnings limitation. The previous age criteria was 70 years of age.”
Do you remember when this was announced? The public debate about whether this was fair? I don’t. OK, so they snuck this in to get it to $30,000 and age 65. For all I know, having done this much, they have subsequently changed it to $40,000 and age 60. Then $50,000 and age 55. Etc. A non-story at every point – and then a permanent entitlement that has to be paid for and cannot be changed, even if the consequences are devastating, even if every single member of the New York State legislature is thrown out of office by a 90.0% vote because of the consequences of what they have done.