These days, public pensions seem more like public enemy number one. Both at the city and the state level, some politicians make it sound like pensions are a black hole where money simply disappears into nowhere.
Nothing could be further from the truth. The money we set aside for our retirees is also an investment fund for our economy’s future. For the most part, pension payments filter through our retirees and directly back into local economies for rent, food, presents for grandchildren, etc. We not only maintain the dignity of New Yorkers in retirement, but also ensure that they are still contributing to everyone’s economic prosperity. It would be nice if we lived in the world
that the news media paint for most public pension workers, where they all make hundreds of thousands of dollars and live a life of luxury. In that world, perhaps pension payments would go unused or continue to be saved. In reality, the average public sector worker receives just $19,000 a year from their pension, and just about all of it goes back into making ends meet. That, in turn, increases trade and industry.
The National Institute of Retirement Security, based in Washington, D.C., found that in 2006 each dollar New York State paid out in pension benefits supported $1.41 in total economic activity. That number comes from direct spending by each retiree, plus the goods businesses have to buy and the people they have to hire in order to serve each retiree customer.
In addition to growth in the private sector, productivity and efficiency are greatly improved in the public sector when employees receive good benefits. Public sector workers get paid less than private sector workers doing the same job, but receive more secure benefits in return. If we do not provide those benefits, there is less incentive for talented and hard-working people to join the public payroll or stay there for their entire careers. With a diminished workforce, governments will ultimately lose money training new workers or have less productive employees on the job.
Cutting pension benefits, or putting retirement savings at the mercy of the stock market, not only hurts retirees, it hurts us all. To use an old phrase, it is “penny wise but pound foolish.” We may save a few dollars in the short term, but we will be dealing a hard blow to the economy in the long term.
Credit: Bill Kresse
When officials talk about pension reform “savings,” they only calculate the amount that the government pays directly into pensions. It does not factor in the increased tax revenue, economic development and government productivity factors mentioned above. Factoring in all those, cutting pensions is definitely a net loss.
Public sector jobs with strong pensions helped build a middle class. Part of that was allowing people to live comfortably not only while working, but in retirement. It’s true that people are living longer than ever, and we must plan for that trend to continue. But there are better ways to do that than setting up future generations for hardship in retirement. Retirees, especially if they are seniors, should not have to be worried about dropping out of the middle class. That is not healthy for either the mental, physical or economic well-being of public workers in our city and state.
Current retirees and workers have very strong protections in New York to safeguard their pension benefits, but we cannot forget about the next generation. The recent recession and poor stock returns have hurt the bottom lines of local and state governments, but that does not mean it will stay that way forever. Many predictions about the collapsing pension system have been shown to be exaggerated. It may be easy to scale back pensions and save money now, but in several decades we will be regretting that we ever did.
This issue speaks to the larger debate about the worth of public sector workers. Lately, too many people are making us out to be a drain on society, whether it’s due to our pensions, health-care benefits, or anything else. Together, we need to put a stop to that kind of thinking. Instead, we will spread the truth that public sector workers are important assets to our communities and a vital part of the foundation of the middle class. Investing in their pensions for the past 90 years has helped make this city world-class, and we must preserve this legacy.