New York’s recently enacted pension reform, projected to save more than $80 billion over the next 30 years, is a favorable development for the state and its municipalities, Moody’s Investors Service said in a report on Thursday.
The reforms are a “critical step” in managing long-term pension liabilities and will provide modest long-term budgetary relief, Moody’s said in the report.
The new legislation raises the retirement age to 63 from 62, lowers the pension multiplier and increases employee contribution rates in a progressive fashion, depending on salary.
Standard & Poor’s executive director Dave Hitchcock also said the reform is a good long-term development, but not as good as the rating agency had projected for the proposed plan last month.
Gov. Andrew Cuomo originally included an optional 401(k)-like pension plan, which was excluded from the legislation passed, raising the retirement age to 65, and higher employee contributions.
“The plan that was actually passed was watered down,” Hitchcock said.
The new pension plan will affect workers hired after April 1. The law does not apply to current employees and retirees, where savings would be greatest.
State Comptroller Thomas DiNapoli said in a statement that while the reform will reduce pension costs for future employees, it will not significantly lower costs for local governments in the short run. Still, the reform may boost morale for investors.
“Anytime they can reduce [pension costs] and bring the numbers down will have a positive psychological effect,” said Dan Genter, chief executive officer and chief financial officer of RNC Genter Capital Management. But that doesn’t mean the problem is solved, he said.
“The jury’s out. Anything they can do to reduce benefits is clearly positive, but I don’t think that you can say, oh if they do this, then they are completely out of the woods,” Genter said.
Moody’s reported that while pension contributions remained steady going into the recession, declines in investment since 2009 have resulted in projections that the state’s annual required contribution will double over the next five years.
Double-A rated New York is one of at least 35 states that have enacted pension reforms and, according to Hitchcock, it is the best-funded of all the states.