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NewYorkStateComptrollerThomasP.DiNapoliNationalPublicPensionCoalitionPressBriefing

NationalPressClubWashington,DCJanuary19,2012

Happytobeheretosettherecordstraight. Coordinated,sustainedattacksbyantipensionadvocateshavefalselycastpublicpensionsascostly,unsustainablegiveawaysthatarebankruptingstatesandlocalities.

Whilesomestateandlocalplanshavebecomesignificantlyunderfundedinrecentyears,thishasbeencausedbytheshortsightedpastpracticesoftheirsponsoringgovernments.

Moststatepensionplansaresustainableforthelongterm. TheNewYorkCommonRetirementFundisamongthebestfundedandbestruninAmerica. Annualreturnof14.6%forourfiscalyear201011thatendedMarch31st.Fundnowhasfiscalyearauditedassetstotaling$146.5billion,thehighestsincetheglobalmeltdownof200809.

EvenwithextraordinarymarketvolatilityandthetepidrecoveryfromtheGreatRecession,weremainmorethanreadytomeetourcurrentandfutureobligations.

Anumberofkeyinstitutionalfactorshavebuoyedourretirementsystemsinceitsestablishment.

o Decadeafterdecade,wehaverequiredstateandlocalgovernmentstomaketheirpaymentstotheFund.Unlikesomestatesthathaveskippedtheirannualpayments

sometimesforyearsNewYorkStatehasnevermissedapayment.

o Ourconservativeactuarialmethodcontinuestoensurethatwewillalwaysbewellfunded.Importantly,wefollowthismethodscrupulouslyratherthantakeshortcutsin

difficulttimes.

Arecurringthemeintheattacksonpublicpensionsystemsisthattheyreunaffordableandthatrisingpensionbillsareeatingupstateandlocalbudgets.

Whilecontributionratesarerising,weneedtoputthisintoperspective. AccordingtoTheCenterforRetirementResearchatBostonCollege,pensioncontributionsfromstateemployersamountto3.8%ofstateandlocalspending,onaverage. NewYork,the

numberis2.4%ofstateoperatingfunds.

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Thevastmajorityofbenefitsarepaidbyinvestments.Overthepast20years,83centsofeverydollarinbenefitspaidtoNewYorkretireeshavecomefrominvestmentreturns,not

employeeoremployercontributions(nationalaverage:68%)

Oneofthemythspromotedinrecentattacksonpublicpensionfundsisthattheyarebloatedwithretireesmakingsixfigurepensions.HerearethefactsforNewYorkState:

o Lessthanonehalfof1%ofour385,000retireesreceivepensionsexceeding$100,000.o TheaverageannualNewYorkStatepension,excludingpoliceandfire,is$19,151.o 76%ofourretireesreceivelessthan$30,000ayear.

Effortstoreformorrestructurestatepensionfundscontinueacrossthecountry.39stateshavemadesignificantrevisionstotheirpensionplansinthepast18months,includingNew

York.

Itemslikethelevelofpensioncontributionsandhowtocontrolovertimeabuseareacceptableareasfordiscussionanddebate.WhatIthinkisunacceptableispromotingthe

moreextreme

change

of

replacing

DB

plans

with

401ks.

401kswereneverintendedtotaketheplaceofpensions.Theyweredesignedtobesavingsvehiclestosupplementpensionsandsocialsecurityincome. Andoverall,intheirrelatively

shorthistory,theyhaveproventobewoefullyinadequateforthosewhorelyonthemfor

theirprimaryretirementincome.

AccordingtoBostonCollege'sCenterforRetirementResearch,401kplanslostacollective$1trillionduringtheGreatRecession.

Weveallheardthedesperatestoriesoverthepastthreeyearsofretireeswhose401knosedivedandwereforcedtofindminimumwagejobsjusttosurvive andwhonowwill

havetocontinuetoworkindefinitely.

Ifthehumancostisntenoughofareasontobewaryofmovingto401ksheressomemore: DBplanscost46%lessthanindividual401kstylesavingsaccounts,forseveralreasons:

o Individualsinvestingtheirown401kpaysignificantlyhigherfees,andearnsignificantlylowerratesofreturn.

o Individualsmustbasetheirassetallocationontheirageandwhethertheyarenearingorinretirement,whileadefinedbenefitplanbasesitsallocationonmarketconditions.

o Individualsmustsaveataratethatensuresthattheirfundswilllastwellintotheirnineties. Incontrast,largeinstitutionalplanslikeourshaveassetsbasedonthe

averagemortalityofitsmembers.

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MovingfromDBsto401Ksavingsaccountswouldbebadforoureconomyaswell. Themoneyspentbyretireescollectingpensionshasastabilizingimpactontheeconomy. Forinstance,77%ofNewYorkretireescontinuetoliveinNewYorkStateandtheretirement

benefits

we

pay

out

to

them

continue

to

be

recycled

into

our

states

economy,

constitutinganestimated$6.5billioninspending,$9.5billionineconomicactivity,and$1.3

billioninpropertytaxespaid.WecanextrapolatetheNewYorkexperienceacrossthenation.

AsExecutiveDirectoroftheNationalInstituteonRetirementSecurity(NIRS)DianeOakleysaidinherJulytestimonybeforetheSenateHealth,Education,Labor&PensionsCommittee:

"Pensionsarea'highfive'fortheU.Seconomy:investing$5.35trillioninassetsforthefuture,keepingsome5millionretiredAmericansoutofpoverty,supporting5.3millionAmericanjobs,anddeliveringretirementincomeatnearly50%lowercostthanindividualdefinedcontributionretirementaccounts.

MovingfromDBsto401KswouldundermineretirementsecurityforevenmoreAmericansandaddevenmoreuncertaintytooureconomy.

Forallthefocusonthecurrentcostofpublicpensions,theerosionofbasicretirementsecurityforworkingAmericanshasthepotentialtobeafarmoresignificantlongterm

problemforournation.

RetirementsecurityisbecomingathingofthepastfortoomanyinAmerica. Thenumberofprivatesectoremployeesinlargeandmediumsizedbusinesseswhohaveadefinedpensionbenefithasdeclinedfrom84%in1980to30%in2010.

Asaresultofthiserosioninpensions,agrowingnumberofAmericansriskretiringwithasubstantiallylowerstandardoflivingornotretiringatall.

Thisyear,thefirstof79millionbabyboomersturned65,andtheCenterforRetirementResearchatBostonCollegereportsthatupto45%ofthem about34millionmenandwomen

areatriskofnotbeingabletomaintaintheirlivingstandardsinretirement.

The

problem

will

only

grow

in

the

future.

A

recent

study

found

that

the

number

of

Americans

livingpast90willgrowfrom1.9milliontodaytomorethan9millionby2050.

Wecantaffordtowalkawayfromthisproblemorleaveitforsomeoneelsetodealwith. InhisspeechinKansaslastmonth,PresidentObamagavevoicetotheurgencyofadvancingnationalpolicytopreservethemiddleclassthebackboneofAmericansociety.

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Hewasrightinhisemphasis.WemustincluderetirementsecurityasanearnedrightformiddleclassAmericans.

ThatswhyIamcallingonPresidentObamatoconveneaNationalCommissiontoaddressthedeclineofretirementsecurity.

First,

we

must

do

no

harm.

The

Commission

must

develop

strategies

to

assure

the

continued

viabilityofsolid,wellfundeddefinedbenefitplansandidentifystrategiestorestorethe

financesofplansthathavefallenintodisrepair.

Second,theCommissionmustfocusonthelongertermproblemoftheerosionofretirementsecurity. Anditmuststartitsworkfromthesimplepremisethatweneedtoensurethat

peopleareabletosupportthemselveswhentheyrenolongerabletowork.

TheCommissionsmembershipshoulddrawfromrepresentativesfromlabor,business,governmentemployers,thefiduciarycommunity,accountantsandactuaries,andacademia

Wemustchangetheperceptionofpensionsbeingviewedprimarilyasaliabilityandacosttotaxpayerstowhattheyreallyare:aprefundingofalegitimate,loominggovernmentliability

andsocietalobligation.

Ifpeoplecantsupportthemselvesinretirementandinoldage,taxpayerswillfoot100%ofthesefuturecosts.Fromafiscalstandpoint,theresponsiblethingtodoistoprefundthese

costsnow.

Andaswetacklethisissue,weneedtorememberthatmuchofwhatwereconfrontingtodayisthecontinuedfalloutfromthemarketlossesof0809.Whiletherewasapolicydecision

madeto

pump

trillions

of

dollars

into

the

financial

system

to

shore

it

up,

there

was

not

a

policydecisionmadetoshoreupandrescuepensionplansinthesameway.

Ifthathadhappened,wemightnotbehavingthisdiscussiontoday. WiththegridlockinWashingtonandthelackofresources,thistypeoffederalinterventionforpensionstodayisunlikely.However,attheveryleast,insteadofjoiningtheracetothe

bottomtodismantlepensionsystems,thisisthetimetopreservepensionplansthatare

proventowork,helpthosethatneedfixing,and tacklethelargerquestionofwhatcanbe

doneforthosenotcoveredbypensions.

Thismustbecomeanationaldiscussionandanationalpriority. Americansretirementsecurityiserodingbytheday. Solutionswillneedyearstotakehold.Failuretoactnowwillmaketheproblemworseforfutureretirees,andwillleavethefull

financialburdentofuturetaxpayers.

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Somewillarguethatwecantaffordtodealwiththischallenge.Iwouldarguethatwecantaffordnotto.

Withoutalongtermpublicpolicystrategyonpensions,weriskcondemninganincreasingpercentageoffuturegenerationsofhardworkingAmericanstopovertyintheirsenioryears.

We

cant

allow

that

to

happen.