How Pension for Public Workers are Bankrupting Cities and States

From the NY Daily News:

He did nothing illegal. At 44, Hugo Tassone retired from the Yonkers police force with an annual pension of $101,333 - thanks to overtime pay he tacked on to his $74,000 salary. Tassone told The New York Times it was the pension he could collect after 20 years of service that attracted him to the job in the first place.

He’s not alone. In the last decade, half of the police and firefighters who retired in Yonkers collected pensions that exceeded their base pay, in (at least one case) by as much as 75%.

Don’t blame the officers. New York’s pension rules make it pay more to retire than to work. And the horrible habits here are a window on a national pension picture that’s looking more disastrous by the day.

Tacking on overtime is only one of a long list of union-won perks behind New York’s rising pension burden. To dodge a federal law capping public pensions to $195,000 a year, in 1997, Albany created a second fund for "excess benefits." Twenty-eight New York employees, nearly all teachers, exploited the loophole, leaving taxpayers with a $6 million check this year alone.

These and other sweeteners are part of the reason why the city’s annual pension payout has increased 900% since 2000. And that’s before health care benefits are included. For every dollar police officers contribute to their retirement, taxpayers contribute nine. Mayor Bloomberg’s office warns that if one thing pushes New York City into bankruptcy again - 35 years after the last time - it will be pensions.

As Gov. Paterson pins budgetary balance partly on more federal money, and lawmakers throughout the state struggle to balance the books, they have no further to look than their own legislative records for the cause of New York’s growing fiscal stress. What is perfectly legal in New York’s pension systems is also not fiscally sustainable.

For years, unions have succeeded in enhancing pension formulas while incentivizing workers to maximize their pension payouts. Called "spiking," "padding" or "boosting and tacking," the strategy of adding "extras" to the final salary in order to nab a higher pension has driven New York’s Metropolitan Transit Authority into a budget crisis. The Authority has tried to tackle its $400 million shortfall by cutting bus and rail service. Riders now get to pay the price for years of transit payroll abuse.

Riddled throughout New York’s pension systems, pension padding is now the subject of an investigation by Attorney General Andrew Cuomo. His office finds that if only 5% of new hires continue the practice, taxpayers will be saddled with another $300 million over the next 20 years.

But loopholes and gamesmanship aren’t the only reason why public pension systems nationwide face massive funding shortfalls. They are the result of a perfect storm of flawed accounting, which fueled unrealistic employee demands that were then underfunded by politicians. In plans across the country, during booming years of the late 1990s, many workers were promised retirement payouts that were "too good to be true" and, thus, impossible to make good on.

The miscalculation is massive. Technically estimated at $452 billion as a result of flawed accounting, the real unfunded pension obligation in state pension plans is closer to $3 trillion.

The bill is now coming due.