This is a classic save-now, pay-later scheme - Ever Upward Blog
Thursday, Feb. 27, 2025
Pension stuff gives me a headache. My only interest in pensions is cashing the check but this seems to be a warning sign, especially that the governor and Mulgrew agree. We remember how Mulgrew and Adams agreed on taking away Medicare?
I didn't write the info below but received it in an email chain. There is a retired teacher chapter meeting on March 18 and a UFT DA in March 19 - expect some controversy at both on this issue.
Kathy Hochul
is putting an addendum to a bill that would basically borrow money from
the NYC civil servant pension funds (EXCEPT the police firefighters
would be left alone). This measure acts almost like a home equity line
of credit, taking from the pension with a pledge to repay it at a later
time. By doing so, this stands to underfund the pension system and
compromise its solvency. This could affect both future retirees and
current ones who are already receiving their monthly allow and stand to
have it lowered.
The
proposition to borrow from the funds is also likely driven by the
presidents of DC37 and the UFT, Mike Mulgrew and Henry Garrido. Just as
bad is the fact that this proposal was done through back end doors with
no transparency and no informing of other smaller unions. Am I supposed
to think that Mulgrew is looking for something to take because he's
getting nervous about repaying this annual $600 million dollars back to
the NYC? This is tied to the Medicare Advantage plan and using
healthcare savings from retirees benefits (by diminishing them) to pay
for raises of current active educators. If he can't get from one source,
he might be brokering deals with the governor to get the money from
another source. This is an election year for Mulgrew.
Here is a copy of the bill:
Here is an article about it:
And Here is further information about it:
an interview that unpacks and breaks down the mechanisms of this addendum by Hochul.
It
appears to me that the school system does not have to pay as much into
the pension system as it has is obliged to, and that gap will be paid
back at a later time and future year(s). The concern is that the mayor,
city council, and union bosses will be out of office by then, and the
newbie officials and younger teachers will have to inherit this
dangerous risk. It is reprehensible that any union would cooperate with
this. And it would not be surprising if Mulgrew and Garrido have lobbied
for this. I also would not be shocked, even if speculative, if any of
this has Randi's behind-the-scenes counsel on it, as she knows how these
systems work and is a master at playing many ends against the middle.
This
is an interview that explains all as we know it now.
Here is the interview:
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| Marianne Pizzitola InterviewArthur Goldstein NYC Retirees President Marianne and I talk about union, health care, and the curious new pension deal our leader... |
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Here is the Mcmahon article in full.
https://ejmcmahon.substack.com/p/nyc-pension-gimmick-alert?utm_campaign=post&utm_medium=web&triedRedirect=true
On the day she announced a
half-baked plan to sort-of, kind-of undermine and stigmatize Mayor Eric
Adams rather than either (a) remove him from office, or (b) leave him
alone, Governor Kathy Hochul quietly did the mayor a big fiscal favor (at least in the short term, maybe). Then again, maybe the mayor isn’t the only beneficiary she has in mind.
Late Thursday, Hochul’s 30-day state budget bill amendments included a technically complicated piece of legislation
designed to reduce city pension costs by $1.3 billion this fiscal year
and next, and by another $9.6 billion over the following six years. The
change would affect the New York City Employees’ Retirement System (NYCERS), which has $90 billion in assets and covers 350,000 active and retired employees; the New York City Teachers’ Retirement System (NYCTRS), which has $285 billion in assets covering 200,000 active and retired employees; and the much smaller Board of Education Retirement System (BERS), which has 58,000 active and retired members and $6.3 billion in assets.
As
depicted below, total savings under this proposal are projected at $11
billion through fiscal 2032. But after that, it will be time for
payback—a big payback. From fiscal 2033 through 2044, pension costs will rise nearly $18 billion higher than the levels that would be projected under current standards. In other words, this is a classic save-now, pay-later scheme.
In
the past, statutory changes to city pension fund assumptions were
introduced by the chairs of the relevant Assembly and Senate committees,
passed with little or no debate, and were quickly signed into law.
This kind of thing has never previously been embedded among a governor’s
Article 7 budget bills, where it doesn’t belong.
Borrow now, pay later
The
last time New York officials monkeyed with pension amortization to
reduce short-term employer contributions was in 2010 via the Contribution Stabilization Program,
which gave the state government and local municipalities the option of
paying only a portion of their annual pension contributions to the Fund
when due, spreading the rest over time with interest. Danny Hakim of The New York Times described
it as “classic budgetary sleight-of-hand”—since employers would in
effect be borrowing from the pension fund itself with a promise to repay
the loan later. “Call it what you will,” said then-Lt. Gov. Richard
Ravitch, “it’s taking money from future budgets to help solve this
year’s budget.” As it happened, the state lucked out: the risky
“stabilization” program didn’t leave fiscal scars because the stock
market strongly recovered in the years that followed.
The
circumstances now are much different. Adams’ FY 2026 financial plan
projects modest growth in pension costs, from $10 billion this year to
$11.8 billion in fiscal 2028, thereafter dropping to $11.3 billion in
fiscal 2029. All of this assumes, of course, that the fund hits its
targeted 7 percent rate of return on investments. Meanwhile, as shown
below, since the end of the Great Recession both NYCERS and NYCTRS have
made progress toward fully funded status. Assuming the financial markets
and economy don’t go into a prolonged slump, these pension funds are
still several years away from getting back to 100 percent.
This gets back to the question of why. With key metrics headed (if slowly) in the right direction, why mess with pension financing now?
Look for the union label
Hochul’s
amortization proposal is of strong interest to the two largest unions
whose members belong to the pension funds in question—District Council 37 of AFSCME and the United Federation of Teachers (UFT). Indeed, it’s safe to assume nothing like this would see the light of day if Henry Garrido and Michael Mulgrew weren’t supporting it—assuming they aren’t, in fact, actively lobbying for it.
A
few more pension basics: for purposes of calculating the annual
contribution due from employers (i.e., taxpayers), pension liabilities
(the total retirement payments promised to all employees vested in the
system) are discounted at a rate matching the system’s expected annual
return on its investments. A higher assumed investment return equates
to a higher discount rate—and the higher the discount rate, the less the
employer needs to contribute each year to cover newly accrued benefits
for current employees.
In the 1990s, the discount rates of public
pension funds across the country peaked at more than 8 percent, which
proved to be excessively optimistic once the tech bubble burst in 2000,
followed by the 2002 stock market downturn, and finally the financial
crisis and Great Recession of 2007-09. (Private pension plans also
invest in the volatile equities market, as well as other assets, but are
required by federal law to calculate employer contributions based on
lower (and hence more prudent) discount rates, benchmarked to Treasury
bills and highly rated corporate bonds.)
In early 2013, the Legislature passed and then-Governor Cuomo signed a bill reducing the city pension funds’ assumed rate of return at 7 percent.
With no further change to pension actuarial assumptions, this would
have created a larger unfunded accrued liability, or UAL, which in turn
would have required an immediate and sizable increase in taxpayer-funded
employer pension contributions. To cushion the blow, the law (Ch. 3 of
2013) provided that the additional cost of the lower discount rate
would be “amortized” over 22 fiscal years, based on the UAL as
calculated in 2010. In each of those 22 years, employer contributions
would include an extra amount representing 3 percent of the UAL. The
amortization period is due to end in 2032.
The bill Hochul
backs would extend this existing amortization period out to 2044 for
the NYCERS, NYCTRS, and BERS. But why bother? What’s the pressing need
here?
As noted above, in contrast to fiscal and economic
conditions prevailing in the wake of the Great Recession, pension costs
aren’t skyrocketing. Both NYCERS and TRS have come close to hitting
their 7 percent targets over the last 10 years, most recently earning a
10 percent return in fiscal 2024. If the stock market continues to
perform well, pension costs will continue to decline. Of course,
there’s always a very real risk that the markets will tank, in which
case costs will rise again. But even under that scenario, the scheduled
end of the current UAL amortization period will provide some added
relief in seven years. The proposed amortization extension would wipe
that out.
If the Legislature approves Hochul’s proposal, the
money saved by the city is most likely to be spent on salary increases.
The DC 37 contract expires in November 2026, and the UFT contract a
year after that; in the meantime, despite falling public school
enrollment, the city must hire and pay thousands of additional teachers
to comply with a class-size reduction mandate signed into law by Hochul in 2022.
So
far, neither Hochul nor Adams has publicly explained or offered any
justification for this maneuver. In the meantime, the late Dick
Ravitch’s words bear repeating: “Call it what you will, it’s taking
money from future budgets to help solve this year’s budget.” *
*After this was initially posted, Governor Hochul’s office released this concerning the pension proposal:
“At
the request of New York City, this proposal is an extension of the
timeframe to fully account for unfunded obligations within the New York
City pension system which were first recognized in 2010. This proposal
will have no impact on the State financial plan, fully supports the NYC
pension system, and will mitigate volatility by extending the period of
recognizing these costs.”
