You do not need to be very good at math to see the problem: The number of retirees and other beneficiaries in New York’s public pension system over the past decade has risen 20 percent, and total pension benefit payments have doubled. Yet over the same period the net assets of state and local public pension funds have gained little or nothing.
The result is a pension "bomb (that’s) now exploding-and New Yorkers will be coping with the fallout for years to come."
That is the warning issued in a new report by the Empire Center for New York State Policy, a fiscally conservative think tank. It notes that the gap between pension liabilities and fund assets is opening as state and local governments in New York struggle to cope with yawning deficits.
The Empire Center predicts that tax-funded annual contributions to the New York State Teachers’ Retirement System will more than quadruple over the next five years to $4.5 billion, while contributions to the New York State and Local Retirement System will more than double, adding $4 billion in taxpayer costs.
"Pension costs would be even higher," the report adds, "if New York’s state and local retirement funds were not calculating pension contributions based on permissive government accounting standards, which allow them to understate their true liabilities."
The root of the problem traces to the 1980s and 1990s, when booming stock values "lulled New York’s elected leaders into a false sense of complacency." Assuming that pension costs would remain near historic lows, state and local government officials boosted payrolls and sweetened retirement benefits.
When the stock bubble burst, the value of pension fund assets plummeted. Even with the market’s rebound, NYSTRS net assets as of 2010 remained below their 2000 level, while NYSLRS net assets had increased only 4 percent over the decade.
A prolonged bull market could bail out the funds, but to count on this would be foolhardy. Instead, the public sector needs to begin shifting new employees to defined-contribution plans similar to private-sector 401(k) accounts. Without prompt action to rein in public pension liabilities, taxpayers will be saddled with more obligations they truly cannot afford.
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