New York's DiNapoli wants commission to protect DB plans

Thomas P. DiNapoli, comptroller of the state of New York and sole trustee of the $147 billion New York State Common Retirement Fund, Albany, on Tuesday suggested creating a national commission “to talk about ways to maintain existing defined benefit plans.”

The commission also would “seek creative solutions to address the retirement security challenge facing those with inadequate retirement resources,” he said, speaking at the conference of the Council of Institutional Investors in Boston.

Mr. DiNapoli said among the questions such a commission should examine are:

• “Should we encourage consortiums of smaller pension plans with the goal of achieving the economies of larger-scale pension plans?

• “Should federal law be amended so that public plans would be allowed to be open to private individuals and employers?

• “Should Social Security withholding be used to boost savings for Americans through voluntary individual accounts in addition to the existing benefit?

“The growing problem of retirement security is too important an issue to kick down the road,” Mr. DiNapoli said. “We need to discuss and debate these and other critical questions and come up with solutions that will shore up retirement security across this country.“

“Maintaining strong defined benefit pensions is not only the right thing to do for our citizens — it’s the best thing for our nation’s economy now and into the future.”

Mr. DiNapoli said public defined benefit retirement systems are affordable and sustainable for the long term, although many of them recently have had to make some changes to their cost structures.

“The truth is, while a few well-publicized state plans are in precarious positions, the vast majority of state pension plans are sustainable for the long term,” Mr. DiNapoli said.

But he noted, “According to the National Conference of State Legislatures, 39 states have made significant revisions to their pension plans in the past 18 months — including my home state of New York.”

“I believe the resiliency” of the New York fund “and other well-funded state pension systems serves as a powerful counterweight to the relentless and misleading argument of unaffordable, unsustainable state retirement systems,” he said.

“A recurring theme in the attacks on public pension funds is that they’re ‘unaffordable.’ Like in other states, we hear again and again in New York about how rising pension bills are eating up state and local budgets.

“According to the Center for Retirement Research at Boston College, pension contributions from state and local employers amount to just 3.8% of state spending, on average. And, according to the National Association of State Retirement Administrators, the number is an even lower 2.9%

“In New York, the number is 2.4% of state operating funds.

“And it’s important to note that over the past 20 years, 83 cents of every dollar in benefits paid to New York retirees has come from investment returns, not employee or employer contributions.

“That’s significantly higher than the national average of 68% for state plans.”

He dismissed the idea that a defined contribution plan would be an adequate replacement for defined benefit plans in terms of securing retirement income at a reduced cost.

He said that “moving to DC plans or 401(k)s is a bad idea.”

“The simple, undeniable fact is that 401(k)s were never intended to take the place of pensions. They were designed to be savings vehicles to supplement pensions and Social Security income. And overall, they have proven to be woefully inadequate for those who rely on them for their primary retirement income.

“The financial crisis of ‘08-‘09 dramatically demonstrated how a collapse in equity prices can decimate 401(k) retirement savings.”

According to the Center for Retirement Research, “401(k) plans lost a collective $1 trillion during the Great Recession,” he said.

In addition, he said, “studies have also shown that defined benefit plans cost 46% less than individual 401(k)-style savings accounts,” in part because “individuals investing their own 401(k)s pay significantly higher fees, and earn significantly lower rates of return.”

He said several key factors contribute to the strength of the New York State Common Retirement fund.

Among them, he said, “Our conservative actuarial method continues to ensure that we will always be well funded. Importantly, we follow this method scrupulously rather than take short cuts in difficult times.

“Our investment expertise continues to enable us to take advantage of market opportunities, while our diversified and balanced portfolio allows us to minimize risk.”

“Another reason our fund is strong is that unlike some states that have skipped their annual payments — sometimes for years — New York state has never missed a payment. Decade after decade, we have required the state and local governments to make their payments to the fund. “

“With a healthy annual return of 14.6% for our fiscal year 2010-‘11 that ended March 31, and an almost 2% (1.8%) return for the first quarter of 2011, the fund now has assets totaling $146.9 billion, the highest level since the global meltdown of 2008-’09,” Mr. DiNapoli said.

“The fact is, from the Great Depression through to the Great Recession,” the fund “has successfully weathered every economic storm it has faced over the last nine decades.”