For decades, governing bodies in cities, counties and states have increased pension

benefits to unions, oblivious of the day the costs of those benefits would come home to attack

their entire financial systems. Now, it has become time to pay the piper — and to seek

reforms, such as bans on overtime pension "padding" or shifts to defined-contribution plans,

that limit future problems.

Projections show that many pension funds will not be large enough to meet the payout of

benefits. A Pew Charitable Trusts study released in February found a $1 trillion gap between

the money states had set aside to pay for employee retirement benefits and the $3.35 trillion

price tag for those costs, and put the 30-year payout obligation at $8,800 for every household

in the United States. Retiree health care costs, not part of pensions but part of the benefits

package, accounted for $587 billion in projected long-term costs — and states had set

aside only $32 billion for that.

The study warned that meeting obligations could mean higher taxes, less money for public

projects or lower state bond ratings, and concluded that "states need to start exploring

reforms."

Indeed, some states finally are acting to reduce benefits or increase the amount of money

union members must contribute. This year, nine state legislatures — including Minnesota,

Vermont, Colorado, Iowa, Wyoming and California — have rolled back benefits. Mississippi

increased union members' contributions from 7.5 percent to 9 percent. California settled with

six unions, affecting nearly 40,000 members — members of the California Highway Patrol,

for example, had their pension contributions increased from 8 percent to 10 percent, and 7,000

of them now will have their pensions based on a three-year average rather than a one-year

formula that fostered overtime "spiking" and other benefit-increasing practices.

New York's common pension system, a $29.4 billion fund that ranks as third-largest in the

nation, uses investments to cover most pension costs, but the 3,021 governments that belong to

the system have had to make expensive contributions as those investments were hit by the

recession. The most recent annual figures, for 2008 early in the recession, show benefit

payouts of $6.84 billion, requiring government contributions of $2.65 billion. Governments

contribute 7.4 percent of payroll for most workers, 15.14 percent for police and fire

pensions.

According to the Pew study, New York had the most well-funded pension system in the nation,

entering the recession funded at 107 percent of obligations. But the state also had set aside

nothing to cover the rapidly escalating costs of retiree health care. Health care costs

account for 28 percent of the total retirement bill, and all of the state's $56.3 billion

long-term shortfall for that.

While New York's pension system ranks as well-run, it has structural flaws that need

correcting. New York took some steps toward that in 2009, creating a new pension "tier" that

will increase the retirement eligibility age and pension contribution levels for new

employees. But the system still allows workers with seniority to pad their last years of work

with overtime — an abuse known as "spiking" — and, because that provision has been

so abused, change is needed.

The current front-runner for governor, State Attorney General Andrew M. Cuomo, has

investigated such practices and is calling for yet another pension tier that would end spiking

and padding. He's right. Workers should be paid overtime as needed for work they do; they

should not be paid for that overtime again for that already-done work in every year of their

retirement.

Most government workers don't get, or don't take, that opportunity to pad their pensions.

The average pension is just under $17,000 for most such workers and just over $37,000 for

police or firefighters, exempt from state income taxes, according to the state comptroller's

office. But "spiking" has become too common an abuse, helping 2,400 government retirees to

pensions of more that $100,000, according to the Empire Center for New York State Policy. The

percentage of police and firefighters retiring with six-figure pensions has grown from 2

percent in 2000 to 13 percent last year.

Given the state's cash crunch, the pension system's deline in investment income (now slowly

recovering but fragile) and the proliferation of persons cashing in on pensions far higher

than public sector pensions, reform is needed.

Defined-contribution plans, now more common in the private sector, can be considered as

replacements for defined-benefit plans, but overtime abuses must be ended.