The AARP-eligible people who control out institutions can never do enough for their contemporaries. In Albany, they have joyfully handed out pension enrichments that public employees have neither worked nor bargained for, over and over, for a decade. And when there isn’t enough money to go around, do they ever tell those of their own generations they will have to give something back? Never. They decide that those in younger generations will have to be worse off, without saying so. So Governor Paterson and Mayor Bloomberg have decided that future hires should have much less generous pensions, and thus much lower total pay overall, a few years after Bloomberg agreed to cut the retirement age for teachers from 62 to 55 and Paterson voted for all those pension enhancements as a member of the state legislature (they generally pass the legislature unanimously). Do they truthfully say “shared sacrifice” means that because those of their generation have shared, future generations will be sacrificed? No, they do not. Thus, they are frauds, as are the news organizations (with their aging readers and viewers) which don’t point that out either. The New York State legislature, of course, is far worse.
The idea that since people are living longer, they will need to work longer, is a reasonable one. But it is as true of those in older generations as it is of those in younger generations. In fact, given that younger generations are poorer and about to get poorer still, it would not surprise me if U.S. life expectancy eventually starts to fall, the way some report the level of education has is our partially post-family society.
The idea that pensions of existing employees cannot be changed, so the entire burden of paying for what they took must fall on younger generations, is a false one. The pension is just one part of the total compensation package, and adjustments could be made elsewhere. For example, the New York State Constitution (which is otherwise ignored, particularly the limits on the debts that older generations can foist on younger generations) says that pensions cannot be reduced or impaired. But it neither reduces nor impairs the pensions to require existing employees to contribute more to them. It strengthens them. The unions claimed all those pension enhancements would cost nothing? Then perhaps their members should pay for the reality.
The state could pass a law setting the employer share of the pension load to a reasonable level — say 8% for most workers, 12% for those who have to work outside in all weathers or lift heavy loads (I’d use the term “physically demanding” but in Albany “physically demanding” means your union gave a lot of campaign contributions), and 18% for police and fire. Employees could be required to pay the rest — less when the economy is up and investment income with it, more when the economy and investment income are down. Any pension enhancements would come out of the beneficiaries’ pockets, not the less well off taxpayers who don’t even get pensions, retiree health insurance, or even health insurance at all.
Rather than a new pension tier, new hires could be placed in an entirely new pension system with separate money. Since the employer contribution would, by law, be the same, if their pension were less generous, their take home pay would be higher, because the employee contribution would be lower. Despite their less generous pensions their total compensation, including pay and pension, would be the same as those who came before.
And what about those who cashed in and moved out? If the existing employees found a suddenly higher pension contribution burdensome, they could re-open their contracts and negotiate higher pay — in exchange for having retirees with more favorable deals contribute to the cost of their health insurance.
Unlike a new pension tier, what I have just suggested would deliver fiscal relief now, when it is needed. And to the extent that lower compensation discourages qualified applicants from public service, such a system would also be ideal, because the employee share would be lower and take home pay would be higher in booms, when competition for labor is greater and public workers deserve to share the bounty, and the reverse would be true in busts, when that government job looks pretty good and public workers deserve to share the sacrifice.
The state legislature could pass a bill mandating all of this tomorrow. But they won’t. They could make retirement income subject to New York State and local income taxes, so the retired, even the affluent retired, could no longer get away with paying nothing. But they won’t.
They will raise taxes on wage earners, even those with fairly moderate incomes if things continue to deteriorate. They might make pensions much less generous for future workers, cutting total public employee pay for younger generations. And they might pass a pension “incentive” to allow those with seniority to retire even earlier, inflating their lifetime income relative to work even more. That’s the way to bet. Just don’t let them say it’s due to “circumstances beyond our control.”