Pension Hang-Up at Heart of Transit Strike

Dec, 21, 2005 — -- The subways and buses are still not running in New York City, thanks in part to a disagreement over pension benefits.

Published reports today suggested the Transit Workers Union had opted to strike after the MTA said new hires would have to contribute 6 percent of their pay to a pension plan, significantly more than the 2 percent pay-in current workers enjoy.

When you do the math, the city would save just a few million dollars over the three-year lifetime of the proposed contract. So why shut down the nation's largest city -- at a cost of more than $1.6 billion for the first week of a strike -- over a few million dollars in savings?

It's because, as in the private sector, public-sector employers face a long-term cash crunch in paying for promised pension benefits.

There are some distinct differences between typical public and private pensions.

Millions of Americans are concerned that their private-sector employers will dump their traditional pension plans before they reach the age of 65. But that age of entitlement is different for most public-sector workers. New York City's transit workers are fighting to keep full pension benefits tied to much earlier retirement ages. Under their previous contract, transit workers could get full benefits after retiring at 55.

And it's not just age that separates public and private retirees. Public-sector workers enjoy, on average, much more generous pension benefits. According to the Employment Benefits Research Institute, the average annual public pension was $20,167 in 2003 compared with an average pension for private-sector workers of just $11,059.

Analysts suggest that the difference is largely attributable to the difference in levels of danger on the job and education that public and private employers face. Police officers or firefighters put their lives on the line during their working years. Accountants and sales clerks don't face the same risks.

Additionally, public retirees are made up of people who are more likely to have completed college. Teachers, who make up one of the largest groups of public-sector retirees, are required to have undergraduate degrees before they start their careers. By retirement, a majority will have earned advanced degrees.

Another factor at play in the continued standoff is collective bargaining. Studies show that 37 percent of state and local workers are represented by a union. In the private sector, that number falls to 8 percent.

So what would increasing the employee pension co-payment have meant for the MTA? Accountants say savings would amount to less than $10 million a year for the first three years. But increasing new-hire pension payments to 6 percent could save the MTA $80 million each year by 2025.

That is the kind of big money that can open a chasm between workers and management in a contract negotiation. The real question now becomes, what type of compromise on pension benefits will bridge the gap and get New York running again?