As comptroller of the State of New York, Thomas DiNapoli is
the sole trustee of the $147.2 billion New York State Common
Retirement Fund, the state employees defined benefit
pension fund. Since his appointment to the office in February
2007, in the wake of predecessor Alan Hevesis
resignation amid a pay-to-play scandal, DiNapoli, who
was elected comptroller in his own right in November 2010, has
increasingly raised his voice in support of maintaining and
strengthening defined benefit pensions within and outside of
the state. He is now calling for the creation of a national
commission to ensure retirement income security in the U.S.
In January New York State Governor Andrew Cuomo unveiled the
so-called Tier 6 pension plan that would effectively reduce
pension benefits for new state employees hired in 2013. The
governor and his supporters in the legislature pushed to move
state workers to a defined contribution plan, a measure
DiNapoli strongly objected to. In their relatively short
31 year history, 401(k)s have proven to be woefully inadequate
for those who depend on them for retirement income, he
stated at a National Institute on Retirement Security
conference in early March, adding that 401(k) plans were
designed to be supplements to defined benefit (DB) plans and
DiNapoli won this round. Next year only nonunion employees
including City and State University of New York professors
who make more than $75,000 a year will be eligible for the
401(k) option with the adoption of Tier 6. DiNapoli recently
invited Institutional Investor Senior Writer Frances
Denmark to his New York City office to talk pensions.
Institutional Investor: Why did you fight to keep a
defined benefit for new state employees rather than permit the
substitution of a defined contribution plan?
DiNapoli: With the Tier 6 debate, people
ask me, why are you against 401(k)s? I always have to point out
that I am in a 457 plan, which has the same structure.
Even if the proposed plan had been passed with an option to
allow for a substitution of a 401(k) style plan for the defined
benefit, it was structured so that there would be no
requirement for an employee contribution at all. It would be
too enticing for too many people to go into it and find out
many years later that they made the wrong choice, especially if
they hit the market in the wrong way. That isnt to say
that a 401(k) is not a good idea as a supplement to a defined
benefit pension as part of your personal savings.
Whats so important about maintaining pension
benefits in New York State?
There are many arguments to make about retirement security
and people being able to retire with dignity and some sense of
confidence. But there is a broader benefit to recycling those
dollars within our state. I dont think we do a good
enough job of explaining the benefit to our economy of having
people, firemen and police, receive a $19,000 annual payout
from our plan. It makes a difference for many retirees between
living in New York, with its higher cost of living, and moving
to Florida. Close to 80 percent of our retirees continue to
stay in New York. We paid out half a billion dollars in
benefits last year. Thats 6.5 billion pension checks that
stay in New York and dont go somewhere else. That money
gets recycled into our economy.
Whats the biggest challenge in preserving
Part of the challenge is getting a balanced picture to the
public. The mainstream press takes the worst examples of abuse
on the benefit side or a plan thats in free fall and
tries to paint that as being typical and the norm. For every
New Jersey, Illinois and Rhode Island, there actually are many
more states that are in better shape and have a strong fund
that is sustainable for the future. Yet thats not the
impression thats created.
Tell me about your call for a national retirement
security commission, and who you envision on it.
Part of our idea behind the call for a national commission
is to look at best practices starting with pubic plans that are
working well. What can we do to encourage that to happen in
places where it might not be happening? That would include
standards for training fiduciaries, imparting an understanding
of and commitment to asset allocation and adherence to
actuarial standards. Some states have gotten into trouble
because they ignored sound actuarial judgment. Besides
encouraging best behavior is there something that needs to be
done perhaps on a national level in terms of a requirement or
law to be sure those best practices are in place?
I think you need a broad range of participants. It might
include representatives from government, business, academia and
labor. It needs to be more than just a state-by-state
discussion which is what is going on
now because there are common themes.
What kind of solution might result from such a
I think a solution depends on being more creative about
providing retirement security for those who dont have it,
whether its someone underprepared for retirement in the
private sector or the public sector. With people living longer
and changed family relationships these days, you can see that
in the not too distant future there are going to be increasing
numbers of older Americans who cant provide for
themselves. Ultimately, theyre going to come back to
government for food or shelter or whatever the necessity
Also, to the extent that youre going to change pension
structures, youre going to have to change federal law.
Thats the kind of serious discussion we need to have.