Across the country taxpayer pension costs for public schools are soaring, and state and local taxes are being increased while money actually spent on education is being cut to pay for it. You see it in California, where a huge tax increase “for education” went exclusively to pensions, and in Illinois, where the City of Chicago’s schools are on the brink of bankruptcy. You see it in Kansas and Oklahoma. In some cases soaring pension costs are the result of past taxpayers’ unwillingness to fund the pensions teachers had been promised, promised for some in lieu of Social Security, which those teachers will not be eligible to receive. In other cases pension costs are soaring because politically powerful teachers’ unions cut deals with the politicians they controlled to drastically increase pension benefits, beyond what had been promised and funded. In many cases there is a mix of both factors.
New York City happens to be the place where the teachers’ union, the United Federation of Teachers (UFT), is perhaps the most guilty, and taxpayers are the least guilty, with regard to the pension crisis. And it the place where the burden of teacher retirement is the greatest. The result is large class sizes despite extremely high public school spending, and a host of services that New York City children do not receive. With virtually all New York politicians in on the deals that have left the New York City Teachers’ Retirement System (NYC TRS) among the most underfunded in the country, however, there has been a desperate attempt to cover up the damage. So the consequences of retroactive pension increases for NYC teachers (and police officers and firefighters) have shown up not so much in education (and policing and firefighting), but in every other public service in New York. And all of this is under Omerta.
This is my final post in a series on public employee pensions in New York and New Jersey, using data reported to the U.S. Census Bureau over the decades. That data, and how I compiled it, was described in the first post in the series.
The reader can download the spreadsheets with the data and charts from links in that post. I took a break from the pension posts to report on the latest separate Census Bureau data on public school finance in general.
That data shows public school spending per student is sky high in New York State in general and New York City in particular, and has soared in the past decade from already high levels. But much of the increase in spending has gone for instructional (ie. teacher) benefits, with pension costs and retiree health insurance the cause.
In FY 2005, New York City taxpayers contributed $1.23 billion to the NYC TRS. Adjusted for inflation into $2016, that equals about $1.5 billion. But in FY 2016 NYC taxpayers had to pay in $3.76 billion, or more than double. To put it another way, NYC taxpayer pension contributions will equal 33.0% of the total payroll of the Department of Education this year according to NYC budget documents, as described in this post.
In FY 2016 the $3.76 billion in NYC taxpayer contributions to the NYC TRS, with 84,000 retired members receiving benefits, exceeded the $3.4 billion in NYC taxpayer contributions to the New York City Employees Retirement System (NYCERS), with 149,940 members receiving benefits. NYCERS covers almost all NYC employees other than police officers, firefighters and teachers – for historical reasons it also covers employees of New York City Transit, now part of the MTA.
New York City taxpayers are facing this enormous burden despite funding their public employee pensions adequately in the past, at least in total if not in every individual year. As noted in this post, nowhere else in the country did taxpayers contribute as much to public employee pensions over the decades as New York City taxpayers have, as a percent of public employee pensions or as a percent of their own income in taxes.
Meanwhile, as a result of a 2000 deal to reduce the amount they had to contribute, the NYC teachers themselves contributed very little to their own pensions recently. Adjusted for inflation into $2016, their contributions fell from $736 million in FY 2000 to just $107 million in FY 2003. Despite a 2012 deal to force newly hired teachers to contribute far more to make up for what prior generations of teachers didn’t pay, NYC teachers contributed just $174 million to the teacher pension fund in FY 2016.
Worse, the amount NYC taxpayers are currently contributing to NYC TRS is not enough. That pension plan is so deep in the hole that benefits paid equaled 13.1% of total assets in FY 2016, even though the paper value of those assets has been temporarily inflated by yet another stock market bubble caused by rock bottom interest rates. With benefit payments equaling 13.1% of assets, NYC TRS only had enough money on hand to pay benefits for 7.6 years. That is almost as bad as New Jersey, where taxpayers have notoriously underfunded public employee pensions for decades.
Over in New Jersey, the teachers themselves have contributed far more to their pensions than NYC teachers have, but past taxpayers did not do their part.
Beginning in 1994, Whitman’s administration allowed the state and local governments to lower their contributions to the public employee pension fund. According to Policy Perspective, within three years the pension fund‘s unfunded liabilities jumped from $800 million to $4.2 billion. This, according to the think tank, “started the failure of all three branches of state government to make promised pensions secure at the same time they compounded the problem by increasing future pension benefits without funding the money to pay for them.”
Just two years earlier, Florio’s Pension Revaluation Act included more optimistic assumed rates of returns on its investments, which allowed the state to contribute less.
Whitman again gets whacked for borrowing $2.8 billion to pay down newly created pension liabilities and balance the budget. Whitman assumed the money to be made investing those bond proceeds would exceed the cost of borrowing, 7.65 percent.
Meanwhile for the New York State Teacher pension fund (NYS TRS), which covers teachers in the rest of New York State, pension benefit payments equaled 6.4% of assets in FY 2016, less than half the share for NYC TRS. The New York State pension system, which also covers local government workers everywhere else in the state except New York City, is one of the best funded in the country, and the NYC pension system is one of the worst funded. This is true even though NYC taxpayers have contributed for more to the pensions over the decades, as a percent of payroll, than taxpayers elsewhere in NY State. And even though the same New York State legislature sets the rules for both pension systems.
Although well funded in the past, NYS TRS might not be so well-funded in the future. That is because the state responded to the Great Recession by allowing school districts to not make their required pension contributions. At the cost, in theory, of paying them later with interest added.
Even if the pension funding eventually arrives, the policy of skipping contributions in recessions, when stock prices are low, and making it up in bubbles, when stock prices are temporarily inflated, amounts to “sell low, then buy high.”
Including money taken from the pension system to pay NYC teachers a guaranteed return on their other savings, NYC TRS paid $5.74 billion in benefits in FY 2016. Actual cash earnings received on its investments, in interest, dividends, etc., totaled just $1.77 billion, or 31.1% of benefits paid. Which is a fair measure of just how well funded that pension plan is.
As it is, New York City reported just $1.175 billion in total investment earnings to the U.S. Census Bureau in FY 2016, including unrealized changes in asset values, presumably because stock prices didn’t go up much and bond prices went down. But regardless of which direction asset prices go, if NYC TRS were to sell them off to pay benefits because its cash returns are not nearly enough, what assets would be left to pay benefits in the future, when today’s teachers are retired? When it comes to paying benefits it is actual cash earnings – dividends, interest, rent – that matter, not unrealized paper gains.
Without enough income from assets to pay benefits at today’s low interest rates and dividend yields, NYC taxpayers are covering most benefit payments directly — in taxes paid and services forgone. NYC taxpayer pension contributions equaled about 70.0% of NYC TRS benefit payments in FY 2016, compared with 30.6% for the New York State teacher pension fund and just 24.1% for the NJ teacher pension fund.
The reality is, however, that NYC TRS is so deep in the hole that taxpayer pension contributions need to be increased to 100.0% of benefit payments, so that all the cash earnings can be used to allow the pension plan to recover. That is another $2 billion per year that should be put in. And rising. (The same is true of New Jersey, where another $3.1 million per year is needed to get the pension plan out of the hole).
So the New York City Teachers Retirement System is far deeper in the hole than the New York State Teachers Retirement System, and nearly as deep in the hole as the New Jersey Teachers’ retirement system, despite New York City taxpayers contributing far more over the decades – and still far more today. The reason is the soaring cost of NYC teacher benefits as a result of retroactive pension increases.
Annual pension benefit payouts have increased by far more than inflation over the decades for all three plans. For the New York State teachers’ pension plan…
Pension benefit payouts have increased by more than the inflation rate every year since the early 1980s. There were particularly large increases in the mid-1990s, as a result of “early retirement incentives” that allowed teachers to retire years earlier than they had been promised – right as a national teacher shortage hit.
And for three years after the year 2000, when a retroactive “cost of living increase” drastically increased pension payments to the already-retired.
Adding it up, payouts by the NY State Teachers’ Pension fund increased by an average of 5.3% per year more than inflation from FY 1996 to FY 2016, but by no more than 13.2% in any one year. Adjusted for inflation into $2016, benefit payments totaled $2.6 billion in FY 1996, $5.3 billion in FY 2006, and $6.7 billion in FY 2016.
One finds the same thing for the New Jersey teacher pension fund, where a big retroactive pension increase in 2001 led to a big increase in payouts that year and in the two that followed.
Former Gov. Donald DiFrancesco boosted pensions by 9.0% in 2001 without forcing anyone to pay for it. “This legislation may have been politically popular, but it accelerated New Jersey’s financial deterioration,” the report said.
All in all, payouts by the New Jersey Teachers’ pension fund increased by 5.5% per year more than inflation from FY 96 to FY 2016 but by no more than 15.3% in any one year. Adjusted for inflation into $2016, benefit payments totaled $1.45 billion in FY 1996, $3.3 billion in FY 2006, and $4.1 billion in FY 2016.
The NJ Teacher’s pension fund had $4.12 billion in benefit payments in FY 2016 for 101,100 retired teachers receiving benefits. But NYC TRS had $5.74 billion in benefit payments that year for just 84,000 beneficiaries.
One reason that teacher pension benefit payments have soared in the rest of New York State and in New Jersey is that the number of retired beneficiaries has soared relative to the number of teachers still working. In FY 1989 there were 3.1 working members of the New York State teacher pension fund for each beneficiary, but that fell to just 1.6 in FY 2016. And in FY 1989 there were 3.2 working members of the New Jersey teacher pension fund for each beneficiary, but that fell to just 1.4 in FY 2016.
The rest of New York State and New Jersey had been growing through suburban development through the 1980s. Imagine a rural town, with a small population and just 50 teachers, that evolves into a highly populated suburb. A few decades later it might have 500 teachers working to serve its now-larger population, but just 50 retired teachers from its rural past. Total pension benefit payments for those 50 retired teachers may not cost very much, but taxpayer pension contributions still ought to be high — to pre-fund the 500 teachers who will be retired in the future. That’s what should happen. But rapid population growth can allow the selfish to hide the true cost of pensions by underfunding, since that cost doesn’t show up for decades. (And in any event, employer-funded retiree health insurance is generally not funded at all).
At some point, decades after population growth slows, a pension fund “matures,” and the ratio of working to retired teachers begins to fully reflect the richness of the pension benefit – the number of years worked for each year retired.
New York City’s teacher pension fund had “matured” by FY 2000, when there were just 1.46 working members for each beneficiary, down from 2.95 in FY 1989. The ratio was just 1.42 working members per beneficiary in FY 2016.
While this would seem to imply 1.42 years worked for each year in retirement on average, the actual benefit for full career teachers in NYC is closer to just one year worked, or fewer than one year worked, for each year retired. That is because the working teachers include those just starting their careers, some of whom (as in any other industry or organization) decide change careers or locations early on rather than staying in the same place and doing the same job throughout their lives. For these teachers, the NYC Teachers Retirement System provides little or nothing.
The typical teachers’ pension plan is backloaded, meaning teachers build up benefits slowly in their early years, then speed up and earn the biggest portion just before they retire. But teachers also contribute to their plans at a steady rate, and in the early years of a teacher’s career, a person’s contributions are often worth more than the pension credits earned. If teachers stay on long enough, they will eventually hit a break-even point, where the value of the pension that has been earned is greater than what was paid for it. Few teachers are able to do this.
A traditional pension can be a very attractive benefit, at least for those who work long enough to get back more money than they contribute. But because of high teacher turnover, mobility from state to state and other factors, only a minority of all newly hired teachers succeed in doing that.
Despite that fact that many NYC teachers get little or nothing, the cost of pension benefit payments by NYC TRS has soared far faster than inflation, and far faster than the benefit payments of the NY State and New Jersey teacher pension funds. On average, NYC TRS payouts increased 6.2% per year more than overall inflation from FY 1996 to FY 2016. In many years, as a result of retroactive pension increases, the increase in benefit payouts was substantial, such as the 51.7% increase in benefits in 2000, thanks to the retroactive pension increase that year, and the 24.0% increase in 2008, after another pension increase, the 24.7% increase in 1996, associated with an early retirement incentive, and the 33.7% increase in 1992, the result of another deal to allow thousands of teachers to retire years earlier than they had been promised.
Adjusted for inflation into $2016, NYC TRS payments totaled $2.3 billion in FY 1996, $3.3 billion in FY 2006, and $5.4 billion in FY 2016. This during a period when the wages of most workers, those who have to pay for these soaring costs in taxes paid and services not received, fell behind inflation.
NYC TRS pension benefits include money taken from the pension fund to provide a guaranteed rate of return to the other savings of all teachers, in their own Tax Deferred Annuity Accounts.
That guaranteed return provides payouts to all teachers in the Tax Deferred Annuity (TDA) program, including those still working. With that caveat, however, total NYC TRS benefit payments per retired beneficiary of NYC TRS totaled $52,000 in FY 1996 and a similar $48,690 in FY 2006, before soaring to $64,210 in FY 2016. And this average includes the very small pensions – perhaps $5,000 or $10,000 – of those who work as NYC teachers for only part of their careers.
To understand how the United Federation of Teachers is constantly working the system to increase pension benefits and hide the cost until years later, consider a list of changes to benefits. The list was extracted from annual NYC TRS reports. I put it in an MS Word document because I expect it to be deleted from future reports – it has already been cut back.
The cost of NYC teacher pensions soared after a 1970 deal between the UFT and then Mayor Lindsay to allow teachers to retire at age 55 after working for just 25 years, far less working and far more years in retirement than they had been promised – and had been funded. The teachers in that plan were “Tier 1.” The result was soaring taxpayer pension costs and gutted schools, with up to 50 kids in a class, often no teaching supplies, and limited maintenance of school buildings. The New York City schools have never fully recovered.
So for teachers hired in 1976 and after, those in Tier IV (as enacted in 1983 to replace Tier II and III), a pension was only promised at age 62 after 30 years of work, and with teachers contributing 3.0% of their pay throughout their careers. And that pension, all that was promised, was all that was paid for in advance. But not what recently retired teachers actually received.
In 1991 there was an “early retirement incentive” allowing teachers to retire earlier than they had been promised. More pension fund money was shifted to the stock market, rather than safe bonds, at the same time. There was another early retirement incentive for members of NYC TRS working for CUNY in 1992. All NYC TRS members received an early retirement incentive in 1995. And in 1996 – with pension funding costs deferred. There was another early retirement incentive in 1998.
At this point, as the large “Baby Boom Echo” generation was surging into the schools and enrollment was soaring, there was a national teacher shortage. NYC schools were hiring whoever they could get, including thousands of uncertified teachers who didn’t even stay the year. One would think the city would have wanted to only provide its teachers with the pensions they had been promised, to hold on to them longer.
Yet there was another early retirement incentive in 1999, along with other retroactive benefit increases. In 2000, the pension reduction for those who retired with fewer than 30 years worked and/or younger than age 62 was reduced for everyone, and there was yet another early retirement incentive for those who retired at the time. There was another early retirement incentive in 2002.
When the Bloomberg Administration didn’t continue the pattern of allowing NYC teachers to retire years earlier than they had promised, the United Federation of Teachers sued the city. For age discrimination.
And then in 2008, with Bloomberg considering running for President as the “education candidate” and not wanting opposition on that basis, even as NYC’s pension costs were soaring as a result of all the prior deals:
Chapter 19 of the Laws of 2008 (“Chapter 19/08”) established retirement programs to permit Tier II and Tier IV current members of TRS to elect to retire between ages 55 and 62 without reduction provided they have 25 years of service, by paying an additional contribution of 1.85% of future pay. New members after February 27, 2008 are mandated into this plan and are required to have 27 years of service.
By “future pay,” that meant that those who retired immediately didn’t pay an additional dime, while those who retired over the next few years paid very little extra. Which is why the pension contributions by NYC teachers themselves have stayed so low.
That massive pension increase was, for me, the last straw.
Often, as part of the same deals to increase benefits or allow early retirement, the City of New York was allowed to temporarily reduce its contribution to the NYC TRS. Either by assuming that future investment returns would be higher, or by amortizing an existing funding shortage (such as one created by the pension increase) for more years. Although for public purposes, all these retroactive pension increases “cost nothing” or “saved money.” To limit the political hit to their reputations, the politicians and teachers’ union flat out lied.
As a result, the politicians of the late 1990s and early 2000s had more money to throw around to increase their short run popularity. These deals explain the decrease in taxpayer contributions between 1999 and 2003. The taxpayers who benefitted from these deals have, in large numbers, died off or retired to Florida by now. Later NYC residents have since paid for their reduced pension contributions many times over in higher taxes and diminished services.
The New York City Teachers Retirement System is 100 years old. It was established in 1917, after a prior plan collapsed due to benefits promised far in excess of what had been funded. According to the New York City Teacher’s Handbook published in 1921…
The original benefit level was retirement after 35 years or service or upon reaching age 65. Reduced pensions were available for those who worked at least 20 years.
If the years worked and age of retirement initially enacted in 1917, comparable to what most of today’s workers receive under Social Security (which NYC teachers also get), had simply been maintained and funded over the decades, the NYC public school collapse of the 1970s, and the current pension crisis and possible collapse, would never have occurred.
But the teachers and politicians never stuck with what was promised in the past, and are unlikely to do so in the future, as long as benefits can at any point be retroactively increased but never subsequently reduced, except for new hires, regardless of the consequences. Raise cash pay and everyone sees it, and its fairness is the subject of debate. Increase pensions and defer the costs, and it seems you can get away with anything.
In 2013 a new pension plan, Tier VI, was passed to save money to make up for the retroactively enriched pensions of those cashing in and moving out. It is like the Tier VI plan passed in 1983 to replace the 1976 plans. It requires NYC teachers, hired then and afterward, to work 30 years and to wait to collect until age 63 to receive full pension benefits. In theory. And that is all that is being funded right now, allowing more money for teacher wage increases and reducing the complaints of taxpayers who believe “teachers have sacrificed” they are catching a break. Meanwhile, newly hired teachers carry resentment of their lower retirement benefits compared with prior teachers to work each day.
But what will the actual years worked and retirement age be for those in Tier VI when they retire? TWU President Samulesen let slip in an interview that the unions are working right now in Albany to get the 2013 pension reductions reversed. Presumably in secret at 3 am, some time just before the first NYC teachers hired in 2013 or after reach 25 years of service in 2038.
While the state legislature, based on past practice, will pass just about any pension increase in exchange for lobbyist funded steak dinners and campaign cash used to keep would-be challengers off the election ballot, governors and mayors sometime present obstacles. But in a year or two or three what deals would “President Andrew Cuomo” and “Senator Bill DeBlasio” be willing to cut?
Would they be similar to deals cut by “President Eliot Spitzer” and “President Mike Bloomberg,” who did the 2008 deal for NYC teachers? “President George Pataki,” “Senator Rudy Giuliani,” and “Governor Carl McCall, who did the 2000 pension deals?” “President Nelson Rockefeller” and “President John Lindsay,” who did Tier I? What price did these men, or public union officials, retired public employees, and public employees with seniority soon to retire, pay for the resulting harm to the people of New York City? As part of the deals, the links between them and the later harm is never, ever discussed.
Like Tier IV teachers, Tier VI teachers are unlikely to become retroactively more qualified or motivated after having retroactively been paid far more than they had been told when hired, because they’ll be gone. It is to reduce qualifications and motivation and increase resentment that NYC’s public unions always push to keep starting pay as low as possible, while increasing the share of total compensation that goes to those not working.
Not only are UFT members always looking to retire sooner after fewer years worked, but also to inflate their pension benefit payments.
One thing that the “Tier 1” teachers didn’t get was an automatic inflation adjustment. As a result of the high inflation of the 1970s, therefore, the real value of the pensions of those who were suddenly allowed to retire years earlier than promised in 1970, fell by half over a decade (as did the real size of the city’s other debts). Even though public services collapsed and the Bag Ladies were left to die in the street, it is only that high inflation of the 1970s – and the related reduction in the real burden of pension and debt costs from the past — that allowed New York City to avoid going bankrupt.
But in 2000 all pension benefit payments in New York State were retroactively increased for all the years of inflation going back to the 1970s. With future cost of living increases mandated as well – with a minimum 1.0% increase even in years when there is no increase in the cost of living. That was the largest retroactive pension increase of them all. The greatest beneficiaries were Lindsay’s Tier I teachers, now in Florida, whose retroactive benefit increase had wrecked the schools (and policing and mass transit) in the 1970s.
Also in 2000 the 3.0% contribution to the pension fund by the teachers themselves was eliminated for those who had worked at least 10 years. Since the UFT salary scale is structured to provide low starting and early career pay, to make teaching less attractive, and sky high pay just before retirement, to inflate the final salaries on which pension benefits are paid, NYC teacher contributions to their own pensions plunged. I estimate that over their careers teachers got to pay 75 percent less for their own pensions as a result of that deal.
When NYC TRS was founded in 1917, in contrast, teachers were required to pay half of the total funding requirements of the pension fund, with taxpayers paying for the other half. In FY 2016 NYC taxpayers made 95.6% of the contributions to the NYC Teacher Pension fund – the members made 4.4% of the contributions. That includes those hired in 2013 and afterward, who under Tier VI are in theory required, once again, to contribute one half the money required to fund their diminished pension benefits. But what will they actually be required to pay? The UFT has six more years to once again order the New York State Legislature to eliminate pension contributions by teachers who have worked then or more years.
In addition to what the salary scale provides, public employees often use various ruses – including late career promotions for those with connections and massive overtime – to inflate the salaries upon which their pensions would be based. NYC teachers are no different.
Take the case of “per session” payments for teacher participation in students’ extracurricular activities. In most of the country, and in New York City in the past, teachers simply supervised those activities as part of their job, but later it was decided that fairness required some extra pay for that extra work. But, it was asserted, the extra pay would not be part of the “final salary” on which future pension benefits would be based. If that extra pay had been “pensionable,” the city would have either had to contribute far more to the pension funds, or to make sure that teachers in their last three years before retirement – the years on which their pensions would be based – didn’t get “per session” assignments.
The UFT, lying in wait in the grass for decades, played along. As a former teachers wrote in a comment on an education blog:
As to whether per session pay should or shouldn’t be pensionable, if you had any idea what was going on you would know the UFT colluded with the city for years to designate per session pay as non pensionable. It took several decisions by arbitrators on the issue of multiple employment that led ultimately to per session pay being pensionable.
That came after a series of decisions regarding CUNY and involved multiple employment in a decision the city and the unions did not expect. For years, teachers were told by the UFT that while making per session pay pensionable, in the end it was not attainable in contracts. Once multiple employment became a fact, the UFT pressed the issue and ultimately per session pay became pensionable.
The UFT had, once again, sued, once a massive unfunded hidden liability had been run up. And then in 2008, according to the NYC TRS annual report in 2013.
“In August 2002, a lawsuit was instituted on behalf of retired plan members seeking credit for work performed as “per session employment.” In January 2004, Plaintiff’s request to proceed as a class action was granted by the lower court. Subsequently, the parties reached an initial settlement in September 2007 and a final agreement in February 2010. In December 2010 the settlement was implemented resulting in substantial costs to the employer.”
What “employer?” They are referring to NYC taxpayers, schoolchildren, and service recipients, who had no idea what was going on. Only that the schools “don’t have enough money.”
Now imagine that a teacher, having been reluctant to do so earlier, starts taking those extra “per session” assignments for their last three years on the job, for an extra $10,000 in pay each year. Entitling them to $5,000 more per year in retirement. And then retires at age 55. According to the Social Security Administration…
A female would have an average future life expectancy of 30.7 years, for an extra $153,500 in total benefits at $5,000 per year. Meaning that extra worked would have actually cost $61,000 per year. But with only $10,000 paid for at the time.
And since this strategy was so successful, the UFT is repeating it. The latest UFT contract, in a deal cut with Mayor DeBlasio, includes all kinds of additional payments to “provide teachers with a career ladder.” Meaning they can pad their pay in their last three years before retirement, and thus their pension benefits for the rest of their lives. The additional pension benefits will probably end up costing many times what the teachers receive in additional cash while working. So how did the Mayor come up with the money to pay for this? He didn’t.
As can be seen from page 383 on, there is now something called “non-pensionable preparation pay.”
At the full retirement age, 62 or 63 as promised or 55 in practice, after 30 years worked in theory but 25 in practice, NYC teachers have received pensions equal to 50 percent of their average salary for their final three years, including previously “non-pensionable” pay.
But back in 1917, when NYC TRS started, they were only promised a guaranteed 25 percent of their average pay for their last ten years, funded by taxpayers. Teachers own contributions were kept separate, and while enough in theory to fund benefit payments at an additional 25 percent of average pay, that was not guaranteed. In other words NYC TRS was initially what is today called a “hybrid plan,” part defined benefit pension, part 401K equivalent. And back in 1917 there was no Social Security.
Today teachers are have a guaranteed pension, and Social Security, and a 401K for their own additional contributions with a guaranteed return. And resent how underpaid they are, because their starting cash pay is low.
How can all these years of deception and manipulation be justified? They can’t. What is more, the UFT’s statewide affiliate, the New York State United Teachers, has an underfunded pension of its own. Rather than jack up dues, NYSUT wants to retroactively cut benefits, but forbade its own employees, represented by other unions, from talking about it.
Facing a series of what they describe as spikes in their pension costs, employees of the state’s major teachers union are facing possible pension benefit reductions, which are needed to keep the union from becoming insolvent in the next few years according to a letter obtained by the Times Union.
The letter makes it clear that this impacts the employees of the union, not the teachers they represent. Public school teachers in New York get their pensions from the state Teachers Retirement System. And as public employees, they are shielded by the state Constitution from pension reductions.
The letter, which urges recipients not comment or discuss the situation on social media, isn’t the first inkling that NYSUT faces financial challenges.
In fact, the public unions have called for the defunding of the Brookings Institution, the Pew Charitable Trust, the Urban Institute, and the Nelson Rockefeller Institute of Government, among others, for merely publishing reports on the effect of rising pension costs on taxes and public services.
Is there anything in our economy like what the UFT has done with regard to teacher pensions in New York City? I can only compare it with another group that, in effect, negotiates deals with its cronies at the expense of the general public, in secret, in a way that reflects political power and not the labor market 95 percent of Americans are in.
The average Fortune 500 CEO makes over $20 million a year. This is roughly 300 times what the average employee makes — and this excludes the CEO’s gains on stock options. Add these in and the ratio jumps to 500-to-1.
Globalization isn’t the cause. In Japan, the ratio of CEO pay to that of the average worker is 16 to 1.
Nor is this the result of market forces. Companies don’t bid against each other for CEOs. To be successful, a CEO needs to understand and manage a single company in a single industry. Such knowledge and skills are seldom portable. That is why 75% of Fortune 500 CEOs are promoted from within. A CEO jumping from one large company to another happens about once a year on average. And when CEOs jump, they usually fail.
Instead of a market, boards and compensation consultants have created a Rube Goldberg device that I label the CEO Pay Machine. This bases CEO pay on what other CEOs (their so-called peers) are paid and on whether the CEO surpasses targets negotiated with the board.
This produces an annual round of leapfrog. After negotiating easy bonus targets, a CEO vaults over highly paid peers, thereby raising the peer-group base for the next jumper. Pay for American CEOs is now as market and performance-driven as was pay for Soviet commissars in the Brezhnev era.
Don’t be fooled by the designation of NYC’s public unions as unions. They are about as much in solidarity with other workers as the beneficiaries of the CEO pay machine. It is the executive/financial class, the political/union class, and the serfs.