Report Finds Pension Costs Poised to Explode

(December 8, 2010) — A new report shows taxpayer contributions to New York State public pensions will “explode” within the next five years, adding billions of dollars to annual taxpayer costs.

Coinciding with warnings made repeatedly by New York Mayor Michael Bloomberg regarding the city’s mounting pension costs, the Empire Center for New York State Policy estimated that New York State and Local Retirement Systems are $71 billion short of what is needed to fund pension obligations, while the state retirement system for teachers has a funding shortfall of $49 billion. “The run-up in pension costs threatens to divert scarce resources from essential public services during a time of extreme fiscal and economic stress for every level of government,” the report said. Additionally, the research showed state pension funds covering government workers and teachers outside of the city have combined shortfalls that could cost state taxpayers an extra $4.5 billion a year by 2016.

The report by the Empire Center found that mounting taxpayer contributions will force the state to divert resources from other services to meet the obligation. The group said that over the next five years, tax-funded annual contributions to the New York State Teachers’ Retirement System (NYSTRS) will rise from about $900 million to $4.5 billion, while contributions to the New York State and Local Retirement System (NYSLRS) will more than double, adding $4 billion to annual taxpayer costs. Increased payments are needed by the plan to recover from a 26% drop in assets in the year ended March 31, 2009, the Empire Center for New York State Policy said.

The report concluded that New York’s pension funding trends highlight the need for fundamental pension reform as soon as possible. “This is not just a matter of financial necessity but of basic fairness to current and future taxpayers—the vast majority of whom will never receive anything approaching the costly, guaranteed benefits available to public employees,” according to the report.