DiNapoli Defends State Pension Fund Against Change To 401k System

Posted by: Joseph Spector - Posted in Uncategorized on Jan 19, 2012

Comptroller Thomas DiNapoli today defended the state pension system against Gov. Andrew Cuomo’s proposal to move to a 401k-type system, saying in prepared remarks that “What I think is unacceptable is promoting the more extreme change of replacing (defined benefit) plans with 401ks.”

The prepared remarks, more like DiNapoli’ s talking points, were released this afternoon by his office after he attended a National Public Pension Coalition press briefing at the National Press Club in Washington.

In the remarks, DiNapoli rebukes Cuomo’s call for a 401k-type option for public workers in New York.“401ks were never intended to take the place of pensions,” DiNapoli said. “They were designed to be savings vehicles to supplement pensions and social-security income. And overall, in their relatively short history, they have proven to be woefully inadequate for those who rely on them for their primary retirement income.”

DiNapoli’ s position will likely bolster attempts by unions to block Cuomo’s efforts for a new pension tier that provides less generous retirement benefits to new public workers. Cuomo argued in his budget address this week that a 401k system would be a less expensive option for the state and would be portable—meaning workers who leave the public sector would be able to take their accrued retirement benefits with them.

DiNapoli, the sole trustee of New York’s pension fund, took a contrary stance, saying that the state’s pension fund is the best funded in the nation and that a 401k system wouldn’t be less expensive. DiNapoli and Cuomo have had a strained relationship. Cuomo, as attorney general, knocked the pension fund and investigated it during DiNapoli’s tenure. Cuomo did, in the heat of the campaign, ultimately say DiNapoli himself didn’t do anything wrong. And Cuomo didn’t endorse DiNapoli in 2010—even though they appeared on the same statewide Democratic ticket. DiNapoli won a close election in 2010, aided by the heavy support of unions.

DiNapoli offered these reasons in defense of the current pension system, saying defined-benefit plans cost 46% less than individual 401k style savings accounts:

·         Individuals investing their own 401k pay significantly higher fees, and earn significantly lower rates of return.

·         Individuals must base their asset allocation on their age and whether they are nearing or in retirement, while a defined benefit plan bases its allocation on market conditions.

·         Individuals must save at a rate that ensures that their funds will last well into their nineties. In contrast, large institutional plans like ours have assets based on the average mortality of its members.

“For all the focus on the current cost of public pensions, the erosion of basic retirement security for working Americans has the potential to be a far more significant long term problem for our nation,” DiNapoli said in his remarks.