Jan 18, 2007 4:01 PM
My very best wishes to all of you for a happy and healthy new year. Our stunning success in winning back the United States Congress and electing Eliot Spitzer as our new governor has certainly put a smile on my face and improved my outlook for this new year, but there are still some nagging worries tempering my optimism. We may have stopped the conservatives from doing any more damage to the safety net that protects millions of Americans, but they can still obstruct attempts to turn things around.
We have won an important battle, but the war is not over. Remember, we still face two years of the Bush veto and, with only a one-vote margin in the Senate, the chances of overriding a veto are slim indeed.
Powerful lobbyists remain a threat. Top executives from two dozen drug companies met recently to plan their strategy to stop Congress from negotiating lower drug prices for millions of Medicare beneficiaries and, if the need arises, to round up the 34 votes normally needed to uphold a veto.
The investment community continues to dream of the millions of dollars it will get its hands on if Social Security is reconfigured to include personal retirement accounts.
But I am especially worried by the challenges that state and local governments across the country are mounting against public employees’ pensions — even those legally guaranteed and backed by union contracts that cover more than 15 million workers — and the rapidly growing trend in the private sector away from defined pension benefits like ours and toward defined contribution plans.
Defined pensions that provide a guaranteed and identifiable income for career employees funded by employer and employee contributions are no longer safe.
Despite years of court interpretations that protect a public employee from the loss of his pension once he has earned it — the New York State Constitution provided protection for public employee pensions in 1940, declaring “the benefits of which shall not be diminished or impaired” — states and cities have found legal ways to scale back existing promises and even shrink current payments.
Citing funding shortfalls, San Diego cut payments to retired disabled city employees, and Montana, Colorado and Illinois are considering similar changes. Michigan and Alaska have closed defined benefit plans to new entrants and New Mexico, Maine and New Jersey are “studying” conversion to defined contribution plans.
The RTC unanimously passed a resolution of solidarity last month in support of the New Jersey teachers and public workers in their protest against attacks on their pension and health benefits. Even Mayor Michael Bloomberg has indicated a strong interest in defined contribution plans for New York City.
At our December RTC meeting, Patrick Lyons of NYSUT’s legislative department outlined the attack on retirement security as the shift from the collective responsibility of defined pension plans to the individual risk of defined contribution plans, a balance between risks and rewards. In the defined plan, employers take all the risk; in the defined contribution plan, all the risk falls on the employee, on his ability to manage his own investments and on the strength of the market at the time of retirement.
Fewer and fewer employers are offering defined plans, he told us, down from 91 percent to 33 percent, because they want to cut costs and they don’t want to be in the benefit business.
The facts are, he assured us, the defined pension is a real bargain for New Yorkers because it attracts and retains quality staff, provides a guaranteed income stream for retired public employees, most of whom remain in the state and spend it here, and provides moral leverage on companies in which we invest our huge pension funds.
Our city retirement system has flourished because of its long-term investment horizon, portfolio diversification and professional asset management and because three of our members keep an eye on our interests as members of the board of trustees. That is not the case for employees in defined contribution plans.
But, Lyons warned us, “the pressure is on.” Conservatives are pumping out propaganda that presents a very slanted look at defined pensions and a growing number of local and state governments, faced with burgeoning financial obligations, are turning to public employee pensions to bail them out. As one San Diegan whose pension was cut after his retirement said, “They’re trying to pay the bills on the backs of the employees.”
Unfortunately the trend is to shift the risk, cost and liability for pensions from the employer to the employee. Although the threat to secure pensions is at risk for millions of Americans we are safe for now because amending the state constitution is difficult, our pension plans provide real benefits to states and localities, and we are very well funded, so even if the system shut down today it could pay promised benefits.
But we have to stay ahead of the curve. Trouble is brewing out there. Our brothers and sisters across America are at risk and that must concern us. We have an obligation to protect those coming along in the generations after us.
As our Retirement Board trustee Sandra March said at the meeting, “Let’s feel good, but let’s not think we can undo the damage of the last six years overnight. We must carry the momentum to the elections of ’08.”