Wednesday, December 21, 2005

Somebody Needs a 401(k) Plan

I confess that I am far removed from the NYC transit strike, and so I have not been following the details. But this item in the New York Times is just sad. The issue seems to be the pension plan. The key paragraph:

The strike began after talks between the union and the transportation authority were halted Monday night after the union rejected the authority's last offer. The authority had agreed to drop its previous demand to raise the retirement age for a full pension to 62 for new transit employees, up from 55 for current employees, but said it expected all future transit workers to pay 6 percent of their wages toward their pensions, up from the current 2 percent.


If this is right, the remaining issue is whether new employees (i.e., NOT the ones currently on strike) will have to pay 6 rather than 2 percent of their wages for the same pension benefits as those currently employed. For people they've never met, who might be willing to work under the new terms, they cost the city hundreds of millions a day? Not the way to score points.

In fairness to the employees-to-be-named later, I wouldn't want a 6 percent contributory pension to be managed by a public bureacracy. Give the new employees a 401(k) plan with an employer match on the first 6 percent of wages contributed and let that be the end of it.

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23 comments:

Arun Khanna said...

"The authority had agreed to drop its previous demand to raise the retirement age for a full pension to 62 for new transit employees, up from 55 for current employees, but said it expected all future transit workers to pay 6 percent of their wages toward their pensions, up from the current 2 percent."
Perhaps a 401 (K) plan with employee contributions from 2% to 6% with employer match till 6% will fit better here.

Anonymous said...

Retire at age 55! With a pension!

dogfacegeorge said...

"For people they've never met, who might be willing to work under the new terms, they cost the city hundreds of millions a day? Not the way to score points."

It's funny how diametrically opposed our perceptions are. The strikers are striking for a principle, and to benefit others rather than themselves, and yet you disapprove.

dogfacegeorge said...

joe,

According to our host, the strikers are sacrificing not for themselves but for those who will be hired in the future. This is a strange type of "greed."

dartblogarchive said...

George...

In order to draw your conclusion that "The strikers are striking for a principle, and to benefit others rather than themselves," you must make two incorrect assumptions.

The first is that the only issue evocative of the strike is the retirement plans of future workers. The Times reported this in order to provoke the reaction you offered. The truth is that the union has a list of demands, none of which the government considered acceptable. Among them: guaranteed 8% raises every year for every employee, guaranteed free healthcare and protection from having to contribute some portion of each paycheck to healthcare, and additional days off such as Martin Luther King Day.

The second assumption is that any given striking worker chose to stand behind the picket lines because of a personal belief in the union's position on the single issue of future workers' pensions. This is plainly not so. They are striking because their union told them to strike. That's how these things work.

And, just so that you cannot in good faith respond by asserting again that the TWU's position is honorable, I saw an ambulance flashing and whining madly as I walked home yesterday. It was trying to get through gridlock on 1st Ave., to a hospital mere blocks uptown. Walked right past the front cab. If you could have seen the looks on the drivers' faces. A bevy of stopped MTA buses and ad-hoc whaleish commuter buses stopped the ambulance from covering the ground it otherwise could have. I was fortunate enough not to have heard the lights and siren cut out in the middle of the avenue, but that doesn't mean that they didn't fade away in a dozen other places throughout the city over the past 72 hours.

I didn't blog that story because my readers didn't need to hear it to understand the grave import of this illegal job action. Evidently, some people do.

For Toussaint, it isn't enough to hold the City's budget and taxpayers hostage. Safety, too. Anything for the brotherhood.

-joe

Andrew Samwick said...

Yes, a 403(b) plan.

I think we may be getting a bit "off track" here. The NYT article says that the strike would end if the pension issue were taken off the table. The pension issue, as the NYT has reported it, has nothing to do with current workers. So there is no nobility or grand principle in this strike. If the union members want to do something for people that they have not met, they should stop breaking state law, get back to work, and let those millions of people who depend on the transit system get where they are going.

The negotiations for the new contract are another matter. The union should bargain hard for the things it wants. I don't see any evidence that they are being paid a below-market wage. What's the vacancy rate for those jobs? How many applicants do they get for new job openings?

Nothing prevents the transit workers from seeking a better job elsewhere if they don't get what they want. But in that case, they have to quit, not strike.

dogfacegeorge said...

"The pension issue, as the NYT has reported it, has nothing to do with current workers. So there is no nobility or grand principle in this strike."

The grand principle, of course, is the basic principle of solidarity. The employer wants to divide current employees from future employees and thereby conquer both. The Union, to its credit, is fighting this tactic.

Nathan said...

One more: I understand that sunk costs are sunk and that in general should not necessarily influence future decisions. Things like prospective search, transaction, and switching costs may be more relevant.

Lord said...

I think you have the math backwards. Changing from a 403(k) with a 13% match to a 403(k) with a 9% match would more closely match a defined benefit plan.
A 6% match would represent a sizable cut.

Alan said...

I would recommend care in taking any public statements in the negotiations at face value. The argument about removing the pension issue from the table is partly a real dispute, and partly a negotiating ploy based on the fact that, technically, it is illegal to bargain over pensions. Section 201(4) of the NY Civil Service Law (the so-called "Taylor Act") states: "The term 'terms and conditions of employment' means salaries, wages, hours and other terms and conditions of employment provided, however, that such term shall not include any benefits provided by or to be provided by a public retirement system, or payments to a fund or insurer to provide an income for retirees, or payment to retirees or their beneficiaries. No such retirement benefits shall be negotiated pursuant to this article, and any benefits so negotiated shall be void."

Anonymous said...

Generally speaking, public transportation might benefit from improved marketing. More volume (customer use) of given capacity will help improve the financial situation of public transportation. It also might cut the oil consumption, which in turn would help trade deficits? Public transportation needs to acquire new customers, increase usage of existing customers, and enhance customer experiences.

Managing employee productivity over long periods of time is also important. Over long periods of time, many for-profit busineses find ways to do a lot more with the same amount of labor (or do more with less labor). So public transportation needs to find a way to manage productivity. I am very unfamiliar with NYC public transporation and am not sure how this figures into the current situation.

Throughput at airports might also be improved through public transportation as a strategic complement. This might help airline financial viability. Not sure.

JG said...

"The truth is that the union has a list of demands, none of which the government considered acceptable."

E.g., they started by demanding pensions at age 50 after only 20 years of service. (This while the MTA's pension plan already is $1 billion underfunded, and it has billions of operating deficits coming in the next few years).

Lest anyone think this demand for 50/20 was mere posturing, they recently got the state legislature to actually enact it by law -- which is also how they got their 55/25 pensions in the Cuomo years -- and only Pataki's veto stopped it.

Then, when the MTA countered by asking for the 6% contribution, the union walked out rather than even discuss it -- over the strong objection of its national parent union -- making the rather brazen response that it was improper for the MTA to even bring up pensions because they can only be set by law.

"Nothing prevents the transit workers from seeking a better job elsewhere".

The main thing that prevents them is that the average bus driver makes $63,000, while median household income in NYC is $40,000 ... union cleaners and janitors make $20/hr versus $13 in the private sector, and similar over-market wage differentials down the line. (Plus the comphensive health plan they contribute nothing towards, the 55/25 pension, etc., of course.)

Two average bus drivers who marry make >$125,000 (+ all the benefits), a household income that places them in the top few percent of the distribution, among "the rich" the left so likes to decry.

BTW, one tiny little factor contributing to the strike that nobody's mentioned so far is intra-union politics -- believe me, it counted for way more than any rational economic calculations on the part of the union, assuming it made any at all, or those of the MTA.

The union's claim that it was selflessly striking for the benefit of "unborn union members" was the funniest thing I'd heard all week. ;-)

dogfacegeorge said...

Alan cites a statute stating that it is unlawful to bargain over pensions. Nevertheless, JG registers his disapproval of the "brazen" union for refusing to bargain over pensions.

JG's argument may be the funniest thing that I have heard all week.

Anonymous said...

what about making the highest paid or highest skilled bus drivers drive a double decker bus?

Anonymous said...

the other option would be more early retirement, and hiring older worker back on a contract basis. older workers on contract do not get health benefits or accrue pension obligations. you can rotate a crew of retirees to do work and save money on new hires.

JG said...

"Alan cites a statute stating that it is unlawful to bargain over pensions. Nevertheless, JG registers his disapproval of the 'brazen' union for refusing to bargain over pensions."

After the union began the bargaining by demanding a pension increase, to 50/20. Get it? ;-)

BTW, the statutes also say it is unlawful for the union to strike, if lawfulness is your measure of appropriate behavior.

With no exception given for strikes on behalf of "unborn" members!

Arun Khanna said...

State mediators have helped bring the New York transit strike to an end.

muckdog said...

Pensions are going to be a huge issue for private and government organizations. Does anybody if the current pension fund is underfunded?

I think most employers will gravitate to 401(k) style plans in the future. This is already happening in the private sector, and it's just a matter of time in the public sector. The public sector has promised far more than it can deliver...

Anonymous said...

Your statement implplies that returns on indiviual 401s are superior to the returns on publicly administered pensions
funds.

Do you have any studies to support that, especially after you factor into the returns the much higher fees charged individual 401 funds vs the fees charged large pensions?

Anonymous said...

The pension problem may not be as bad as it recently appeared.

The discount rate on pension liabilities is going up, which will make the present value of pension and post-retirement liabilities smaller today. This, in turn, will probably make the amount of "unfunded" liabilities decrease (especially if the stock market averages in the U.S. reach new all-time highs in the future).

Meanwhile, we need improved financial reporting on salary & wage expense at large, publicly-traded corporations. Over long periods of time (1950-today), we (the public, policy makers and investors) need to know where the cash for compensation is going in large corporations (in total $s, as a % of revenue, vs. industry competitors, other benchmarks).

fester said...

Andrew: One thing that you are are significantly discounting in your presentation of the pension issue is the original demand by the MTA to have the TWU create a two teired work force. I blogged about this at my place, and the $20 million is chump change over 3 years and 33,000 workers if the pension contribution was increased from 2.0% to 2.X% where X is determined by the actuaries. However splitting the pension contributions splits the union and destroys future negoatiating power on the part of the union as it is no longer united.

Anonymous said...

An end to traditional pensions, or more portability in pensions, may help mitigate costly, negative aspects to group think. Currently employees might stick with a legacy employer that is headed off the track because switching costs are high given traditional pensions. Employees do not speak up or take a controversial position because to do so might jeopardize job security and the mighty pension benefit that is accruing. Mgt at such employers, in turn, can engage in behavior that is detrimental to the long-term future without fear of losing good employees.

JG said...

For the record, they settled the strike by making the pension situation worse: giving the union workers $165 million in pension contribution "rebates" that offset the legal penalties they incurred, at a time when the pension fund is already $1 billion underfunded.

~~ quote ~~
Budget watchdogs charged yesterday that the MTA's new contract with the transit workers raids the pension fund to give them a huge one-time bonus payment at a time when it is unaffordable....

"It's simply a belated Christmas gift. It's just a giveaway," said E.J. McMahon, a budget analyst for the Manhattan Institute.

"They're raiding the pension fund and treating the fund like a piggy bank. Someone has to pay the piper for the pension-fund raid," he added...

Norman Rosenfeld, a former pension adviser to the TWU, estimated the cost of the whopping giveback could be as much as $165 million. "I never thought the MTA would give it back," Rosenfeld said...

The decision came out of the blue on Tuesday night just as the TWU executive board was set to approve the contract...

City pension actuary Robert North said the MTA — or someone — would have to "replace" the funds removed from the pension funds to provide the workers with the refunds. It is unclear how that would be done and the MTA declined comment on the issue...

Transit workers eligible for the refund boasted that the windfall will more than offset any penalties the court imposes for conducting an illegal strike... NY Post
~~end~~

So it's business as usual, just like with other public pension and retiree health benefits, Social Security, Medicare, etc. The politicians promise 'em anything and more, saying nobody has to pay for it.

Until the day comes when people will have to start paying for it, by which time these politicians figure they'll be gone and it'll be somebody else's watch.

So much for them getting a 401(k) plan!