Pension Rate Relief Cannot Be Viewed As Found Money
Finally, there is some good news to report about pension rates.
Pension contributions have skyrocketed since the late 1990s, when many governments were paying less than 1 percent of pension costs. Now, for the first time in five years, governments and school districts will pay a little less for employee pensions. Rates paid by government employers outside New York City for the fiscal year that starts April 1 will fall to 20.1 percent of wages from 20.9 percent for most employees, and to 27.6 percent from 28.9 for police and firefighters. The decreased rate is a sign of slightly better economic times. The pension fund is directly impacted by the financial markets, and the better economy has meant better performance by the pension fund.
New York has worked hard in recent years to mitigate the cost of pensions. The state Legislature passed varying pension reforms in 2009 and 2012 – but taxpayers won’t see a real benefit for another two decades when workers hired under those pension rules begin to retire. Until then, pension costs will be set at the whim of the stock market, a scary proposition to say the least.
We have seen over the past few years what happens when pension rates increase – taxpayers suffer. And, while the stock market has rebounded somewhat, many homeowners and businesses are still struggling, especially with the prospect of the Affordable Care Act and its likely higher costs for business looming on the horizon.
This slight decrease in pension costs shouldn’t be viewed by anyone as “found” money, however, especially in light salary and benefit costs that will still increase in coming years and the state’s tax cap. Local elected officials who are about to begin budget talks, and especially those who are in the midst of contract negotiations, shouldn’t view this as a time to begin giving big raises to employees.
It will only come back to bite them, and their taxpayers, when pension rates begin to tick back up.