Pension Reform

Gov. Andrew M. Cuomo is joining the chorus of public officials nationwide who have had to bring their constituents a dose of painful reality: There must be significant reform in the public pension system. In the current economic climate, states must choose between funding pensions and funding road and bridge repairs, schools and social services. There's no fat to trim, no pork to un-barrel, no back to stop scratching.

This dilemma has led to a deep divide between public employees and legislators, as both sides try to control the debate. Underlying this divide is the issue of fairness, but that means very different things to different parties.

One notion of fairness — the position taken by most unions — is that once you've negotiated salary and benefits with employees, they have a lifetime right to what they've been promised. In this view, threats to change the terms of pensions by raising the retirement age or reducing benefits — changes that in New York would require a change to the state constitution — are seen as a betrayal.

The flip side of this idea is the "all bets are off" approach to pension fairness, given the current financial emergency facing state and local governments. From this perspective, whatever terms have been negotiated are trumped by the crisis. Proponents argue that if municipalities and states face bankruptcy or draconian reductions of public services because they cannot meet their pension obligations, then pension benefits — even those earned to date — should be reduced.

A number of states, including New York and Illinois, embrace another definition of fairness: a multitiered pension system. Under this scenario, all new employees are subject to a different formula when hired. Gov. David A. Paterson instituted a Tier 5 for public employees in 2009. And Cuomo campaigned last fall on the idea of creating a less expensive Tier 6. This system preserves the promises made to current employees but raises other fairness problems when people performing the same jobs are rewarded differently.

A final fairness argument would give current public employees the benefits they have earned to date, but would change the contract going forward to reflect economic realities, resulting in reduced final benefits. Many citizens point out that their own pensions in the private sector have changed with the deteriorating economy, and that, in fairness, public employees should be subject to similar adjustments.

All sides of this issue make arguments based on the ethical principle of fairness — but they all choose their own definitions of fairness.

What might bring the sides together is a recognition that blame for the current state of affairs must be shared by everyone — government officials who offered generous benefits as an alternative to raising salaries or as a recruitment tool (and as a means of securing political support), public employees who ran up regular and overtime pay before retirement to boost their payouts, unions who refused to consider any changes in pensions to accommodate new economic realities, and citizens who would not vote to tax themselves adequately to cover the rising costs of the services they demanded.

Because we share this responsibility, the fair approach to pension reform will also share the pain. No one is going to like the solution to this problem. In fact, the best solution will be characterized by the fact that all sides are unhappy with some of its provisions.

There is only one solution that is ethically unacceptable: dumping the problem on the next generation — forcing our own children to pay for our failure to act.

Judy Nadler is senior fellow in government ethics at the Markkula Center for Applied Ethics. This article first appeared in Newsday, 2/14/2011.