Skyrocketing state and local employee pension costs have been a major factor in the fiscal crisis affecting every level of government in New York State. Since 2001, the increases in New York City’s pension contributions ($1.5 billion) have accounted for nearly half of the total increase in city spending.
The problem lies with how New York’s state and local governments—including New York City—structure public employee pensions. The defined benefit pension plans used by state and local governments guarantee employees a fixed percentage of retirement income based on their peak salaries and career longevity. These promises are financed by a combination of government payments and market returns, meaning that government always faces massive pension payment increases during stock market downturns—exactly when taxpayers can least afford them.