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February 19, 2010

Pension Reform for the Political Class - LIMBA meeting 19 February 2010

Assemblyman Michael Fitzpatrick spoke to our LIMBA meeting today and here is the recap that I wrote:

LIMBA Meeting 19 February 2010 – The Hon. Michael Fitzpatrick, NYS Assembly

Pension Reform for the Political Class

Mr. Fitzpatrick arrived this morning to speak to us about what is wrong with New York State, and how to fix it.  In a refreshing perspective, he described to us how the pension system for the Political Class works.  In opening, he said if you want to change politics, you need to change the defined benefits plan pension system. (DBP).  The path of least resistance is the road most often taken in Albany.  DBPs are the place to focus on.  Term limits are not the answer, because as we have seen, politicians move to find jobs within the patronage system as they are term limited out.  This keeps them in the pension system and it operates at all levels of NYS government, from the state down to the town and village levels.  Term limits don’t remove people from politics.  Mr. Fitzpatrick handed out reprints of several articles that appeared in the Wall Street Journal ( Henninger, Merrick )and New York Post regarding political spending and benefits.  He also called DBPs “Fiscal Carbon Monoxide”.  Very few members of the public understand how the system works, and we need to get people to focus on the issue.  Moving the Political Class to Defined Contribution Plans like 401K’s would clean up the system and eliminate the practice of “pension spiking”, where an official in the system moves to a high paying job for the last three years of their career to boost their pension.

Mr. Fitzpatrick is happy to be known as one of the most conservative assembly members and is sponsoring a pension reform bill.  Right now, there is no incentive to be fiscally responsible in government.  The unions and the government don’t really negotiate with one another for the common benefit, instead there is much public posturing and threats to oust the incumbent.  The reform bill is designated A.06932.  The bill would cap present pensions and introduce a Defined Contribution Plan for retirement.  Changing the rules of the game is what is needed, and this bill will be a start on the road.  Term limits don’t change the game rules, they simply force the players to find new spots.  He gave the illustration of an elected official moving to a patronage job to boost that last three years of salary, which determines the pension payout.

Allowing pension contributions to be amortized over time, simply makes them more expensive and puts it on the governmental credit card.  Government is operating on an antiquated business model and the time of reckoning is arriving quickly.  Quoting Herb Stein, “Anything that can’t go on, won’t”.  His bill is not addressing the vast majority of public employees yet, it is addressing the Political Class.  He is expecting a fight over the State Constitutionality of the bill around the diminishment of benefits, and described a debate that he had with a staffer in the Comptroller’s office around this.  His assertion is that if you don’t carve out the Political Class from DBPs, you will not change the culture of Albany.  The Political Class will not do anything against their self-interest unless it is forced to.

The Assemblyman wound up his passionate pitch by emphasizing that pension reform is the place to start.  As an ex-banker he understands the pension system, and how it works.  The Political Class’s benefits are far outstripping the benefits available to the general public, and it is sowing the seeds of revolution.  To have a healthy public sector, you need a healthy private sector, and the path that the government is on is the wrong direction.  A Defined Contribution Plan stops the gaming of the pension system.  Starting with the Political Class, create new tiers of pension systems, eventually moving the entire state employee system to Defined Contribution Plans.  He closed with a plea to ask candidates for office their stand on the following question:  “Should taxpayers continue to fund Defined Benefit Plans for Politicians?” and listen very carefully to their answers.

The Q&A portion of the program was excellent, as usual.

A question from Jovanna Little about Section 211 waivers prompted an explanation.  A section 211 waiver is something that allows a pension collector to draw a salary from a new job, essentially double-dipping.  This is often illustrated by the case of a police officer retiring from the force in their mid-forties and starting another career in the public sector while drawing their police pension.  The Assemblyman related that the screams about these waivers will get louder as the fiscal walls keep closing in, and that State Senator Jeff Klein is leading the effort to close this loophole.

 

Once again, a revealing look at a subject that not many of us know about, but affects us all greatly.  LIMBA offers you the chance to interact with knowledgeable people in positions of power for a very reasonable price.  The heaviest price is getting an early start on a Friday morning, but it is well worth the effort.

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