UNION LEADERS SPEAK
Pension Shortfall is
Wall Street’s Doing
New York’s professional hand-wringers are leading the public fight against union pensions and benefits, calling them major causes of the city’s fiscal distress. Tabloid editorialists belabor worker pension “abuse,” and conservative think tanks beat the drums for reducing worker benefits.
The facts about the pension system tell a different story. First, city pension benefits are generally modest; second, the reason the city’s contributions to pension funds have risen has everything to do with the global economic crisis that cost state and city pension funds more than $100 billion in lost value.
Let’s start with the myth that city workers’ pensions are unsustainably generous. The average pension for a member of the city’s Teachers Retirement Fund in 2009 — and this includes the pensions of many principals and upper-level administrators who started out as teachers — was $42,235 per year. Retirees from the city’s other large civilian union, District Council 37, collect average pensions of only $18,000 per year.
Like many employers, the city makes contributions to the pension funds of its employees, most of whom make required contributions from their salaries (in addition, many employees also make voluntary contributions to 401K-style supplementary plans). The amount that the city contributes varies by year, but in the past it has been as low as 4.3 percent of payroll for the teachers’ system. Annual contributions have climbed to 30 percent to make up for investment losses, but as the stock market recovers in future years, that level will diminish.
In order to help the city meet its obligations, the United Federation of Teachers stepped forward last year and negotiated a change in pensions that the city said would save it $100 million a year.
The city’s pension funds could recoup millions of dollars more if they were permitted to sue the Wall Street firms whose trading mistakes and criminal actions caused the massive losses. The legislature should modify the Martin Act — the law that allows the state to pursue wrongdoing on Wall Street — to let pension funds bring such suits.
Taxpayers, particularly those in higher brackets, should also be part of the solution. During America’s great expansion from 1950 to 1980, the wealthiest 1 percent of Americans collected about 10 percent of total income. As of now, the nationwide percentage is 23.5 percent, and in New York City, the top 1 percent of earners take in nearly half — an astounding 46 percent — of all income. Yet a large piece — $4 billion annually — of the huge deficit New York state is facing is due to the planned expiration of income tax surcharges on the highest earners.
The attack on city-employee pensions is just the opening salvo in a campaign to “balance” the budget by reducing the services important to the great majority of the people who live and work in this city, from schools to sanitation and health care. Working- and middle-class New Yorkers who make this city their home can’t afford to let this attack succeed. #
Michael Mulgrew is president of the United Federation of Teachers.
This article first appeared in Crain’s New York Business.