Private Participation in Public Pensions
Private Participation in Public Pensions
Expanding the Availability of Retirement Benefits to Small Businesses and Non-Profits

"Offering the option for more New Yorkers to join the public retirement system will not only provide a comfortable retirement for our residents but it save our state on social services in the long run." Bill Samuels

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Key Reading: "When the Good Pensions Go Away: Why America Needs a New Deal for Pension and Health Care Reform" (2008) by Thomas J. Mackell Jr.

 

Savings for Retirement by Age

Among different age groups, who have saved any money for retirement:

 

Total

18-24

25-34

35-44

45-54

55-older

2012

61%

35%

55%

66%

64%

71%

1997

64%

30%

63%

72%

73%

75%

 

 

Authored by

Pensions are under widespread attack in New York and nationwide.  In fact New York's current and last Governors have each added a new tier to the retirement system, five and six, to reduce retirement benefits for future state employees.  The recent addition of tier six was coupled with a voluntary portable defined contribution plan (like a 401K) where new non-union employees can opt out of the typical defined benefit plan offered to other participants.  It is worth mentioning the reason that new tiers have been added is because the New York State Constitution protects again the diminishing of benefits.

Additionally, the Constitution empowers the legislature to offer new retirement benefits, including following a new national trend in offering for private sector employers and employees to participate in the public retirement system.

In an era where employees have reduced retirement savings, by almost $2 trillion in 2010 according to NPR, the protections afford by the New York State Constitution will continue to offer participants piece of mind in participation and savings.

The economic downturn gutted existing private retirement plans and hampered the ability of business to offer them according to Ron Snell a Senior Fellow at the National Conference of State Legislatures.  In response at least 12 states including California, Connecticut, Illinois, Maryland, Massachusetts, Michigan, Pennsylvania, Rhode Island, Vermont, Virginia, Washington and West Virginia are considering government-run retirement plans for private-sector employees.  The Council of State Governments has stated that solutions such as this one are necessary in order to enable the aging population to support themselves in a future where Social Security may not be viable, properly funded or a sufficient safety net for retirement.  This program would provide Seniors with retirement security and a quality so that they will not need social services just to live through their retirement.

 

 

 

Employers who offer retirement plans have the choice of offering a defined benefit or defined contribution plan.  Defined benefit means that employees can plan on a minimum monthly payment when they retire based on their current salary.  Defined contribution means that employees can plan on a monthly contribution related to salary but monthly payments once they retire will depend on the performance of the stock market on the diversity of their protfolio.  

In a defined benefit plan, the employer bears the risk and in strong economies often may not have to make contributions which had historically been the case.  However, in a depressed or unpredictable market, employers often have to conribute more than they might otherwise have been accustomed or planned for.  In a defined contribution plan, like a 401(k) employers may choose how much to contribute in order to match an employees contribution, this contribution is necessary regardless of market performance and the employee bears all the risk.

As the market has become more volitile and portfolio less diverse and therefore less secure or stable private sector employers have have stopped offering defined benefit plans with some raiding or converting them and leaving employees without retirements or with substantially less then they expected and worked for all their lives.

Meanwhile, fewer employers are offering any retirement plans let alone the minimal support of a defined contribution plan with or without matching.

By offering participation in the public retirement system to private sector employees the State of New York can stem the tide if not reverse it as we reorient long term planning towards a secure retirement for each and every New Yorker that they can count on.

NEWS BEHIND THE CONSTITUTION
Times Union
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Wednesday, January 23, 2013
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Wednesday, January 23, 2013
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OPINION EDITORIALS ON THE CONSTITUTION
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New York Times
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New York Times
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SOLUTIONS
Non-legislative proposals from community groups, advocates and thought leaders.
A selection of relevant solutions from other states.

Massachusetts is the only state so far to pass a policy, although its scope is limited: non-profit workers at firms with 20 employees or fewer. The California Senate approved a much broader bill in May, and it is now working through various Assembly committees.  California, Connecticut, Illinois, Maryland, Massachusetts, Michigan, Pennsylvania, Rhode Island, Vermont, Virginia, Washington and West Virginia are considering government-run retirement plans for private-sector employees

 

 

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