PEF threatens to sue to protect pension fund

DEFENDING PENSION FUND — PEF President Roger Benson tells reporters the union joins state Comptroller Alan Hevesi in opposing a proposed amendment to state law that could dangerously shortchange the pension fund. — Photo by Sherry Halbrook

By SHERRY HALBROOK
The state and local governments have been skating too long on contributions to the state pension fund, and it’s time to start making up lost ground.

PEF President Roger Benson joined state Comptroller Alan Hevesi in a press conference in late April to call for a resumption of public-employer contributions and to say they would sue Gov. George Pataki if his plan to cap employers’ contributions at 6.5 percent of their payrolls were put into effect.

“The pension fund is not the governor’s ATM,” Benson told reporters at the news conference, warning PEF would go to court if necessary to ensure the state and local governments make the contributions toward their employees’ retirements required under the state constitution.
Their employer contributions have been virtually suspended since 1990, when a strong national economy and stock market brought in enough return on the fund’s investments to make up for that loss. But since the economy began to cool in 2000 and the stock market ran into trouble, the pension fund’s investments have lost $15 billion.

Corporate scandals blamed
“Public employees are not responsible for the rising pension contribution rates,” Benson said. He attributed $9 billion of the pension fund’s losses directly to “corporate accounting scandals.”
“The real anger over rising local government contribution rates should be directed toward corporate CEOs who ripped off companies in which pension funds were invested,” Benson added.

Caps dangerous, illegal
Hevesi said he could not legally go along with the governor’s proposal for easing the financial blow on government of resuming pension contributions, because it would violate the state constitution and constitutes a “raid on the fund.”

“It would injure the fund; it would injure taxpayers and it would injure retirees,” said Hevesi, who estimated Pataki’s plan would add $6.7 billion to the costs for local governments over the next four years.

If the governor’s proposal is enacted, Hevesi said he could not implement it because the state Court of Appeals has found in previous cases that the state and local governments cannot avoid their constitutional obligation to contribute enough money to the fund to cover its current and future expenses based on actuarial data.

“For many years, the stock market allowed local governments to pay almost nothing in pension costs, allowing them to save nearly $40 billion since 1990,” Hevesi said. “Unfortunately, those days are over.”

Some relief for governments
The comptroller said, “For two years, I have been working with all interested parties to develop a responsible way to help local governments transition to costs that are still lower than they have paid in the past and comparable to costs of other governments around the country.”
The comptroller said legislation was passed last year to help local governments deal with the crisis, and they have known for 15 months that they would have to contribute 12 percent of payroll for 2004. 

He proposed amending that law to provide some further accommodations to ease governments through the crunch. These include permission to borrow half of the money to make their 2004 payments and to wait until 2005, instead of 2004, to start making payments on that debt. He estimated this would save the state $106 million and the local governments a total of $172 million.

And he said he would support moving the deadline for pension contributions from December 15 to February 1. While February is still within the same state fiscal year as December, it falls in a new fiscal year for many of the local governments and would let them budget the expense a year later.

“This provides a one-time cash flow benefit of about $980 million to about 1,100 local governments that have a calendar-year budget,” Hevesi said.

The comptroller said he believes governments should always contribute at least 4.5 percent of their payrolls to the fund even in the best years, to cushion the blow when times are tough.
Hevesi said he does not expect the fund’s investments to significantly gain ground soon.
“We’re anticipating a huge drop in the economy and stock market next year,” he said.