One of the largest and most difficult issues facing the next governor will be the state's $134 billion retirement system and how to pay for its 1 million members as they age.

In 1991, only 27 percent of the system's members were retirees and beneficiaries, with the rest actively employed and helping to keep its finances afloat. But by fiscal 2010, the number had grown to 375,803 retirees and beneficiaries, about 36 percent of the total system.

Along with enrollment, payouts have grown too - from $3.7 billion in 2000 to $7.6 billion by 2010.

Along with pressing money concerns, the next governor will likely keep an eye on the integrity and political aspects of the retirement system. A "pay for play" scandal recently resulted in the felony guilty plea of former state Comptroller Alan Hevesi for accepting improper payments from a California investment company seeking business with the state's retirement system.

Here's how the two major-party candidates for governor - Democrat Andrew Cuomo and Republican Carl Paladino - would deal with the state pension system if elected.

 

Cuomo:

 

One of Cuomo's boldest moves as state attorney general has been his investigation of abuses of the pension system. He called the bribes to Hevesi and others "an old-fashioned payoff of state officials," and vowed to clean up a broader "pay-to-play" scandal he said influences how state pension fund investments were made. The probe has recovered more than $100 million for the state.

As governor, Cuomo proposes to make several changes to the pension system, starting with its escalating costs for taxpayers.

"We simply can't afford to pay benefits and pensions that are out of line with economic reality," he said.

He wants to create a new "tier" in the system to lower retirement costs for new employees. He also wants to curb "padding" of retirement payouts by employees who work large amounts of overtime in the last years of work.

But it's not clear whether Cuomo would seek a 401(k) retirement system for state retirees, who for years have received traditional pension defined payments. "I don't have a position on a specific option, but the strategy is going to have to be to reduce the costs," Cuomo said in July.

A Cuomo spokesman said "all options are on the table as we look to reduce expenses."

Overall, Cuomo wants to create a board of trustees to oversee the state retirement fund's investment portfolio, rather than just a single trustee - the state comptroller - which Cuomo blamed as a factor in the Hevesi scandal. He also wants tougher conflict-of-interest rules, which would prevent the state fund from doing business with investment firms that give political or charitable donations to those overseeing the state fund. He also wants to create new civil and criminal penalties for those who violate ethics rules, and rules to prevent a "revolving door" between state officials and investment firms.

 

Paladino:

 

Like Cuomo, Paladino is critical of the past management of the state pension system, which he calls "a mess". But Paladino is more clearly committed to moving the state pension system from a traditional pension paid to retirees and replacing it with a "defined contribution" system, in which workers would pay into their 401(k)s along with some matching money from their state employers.

His proposed changes in the state's retirement plan are part of his overall attempt to drive down the cost of state government. "I will immediately lower the compensation costs of all non-union personnel by 10 percent and require employee contributions to health care and pensions," he said. As a negotiating tactic, Paladino has indicated a willingness to fire all or part of the state workforce to get them to agree to a reduction in future retirement benefits.

To lower retirement costs, Paladino said he'll also seek to create a new pension tier that includes "an annual cap on benefit amounts." He's also talking about possibly raising the eligibility bar to a higher retirement age. To avoid "padding" of pensions, he would require that retirement payouts be based on the entire career, rather than the top three years of income.

In addition, Paladino wants to eliminate pensions for new state legislators, and make elected officials pay 50 percent of their health care premiums. Currently, no contribution is required.

 

Pension primer

 

The New York State retirement fund, established in 1921 and now the third-largest in the nation, includes the state employee retirement system and the police retirement system.

 

Size of fund:

$134.2 billion in net assets.

 

 

Employees covered:

679,217 employees; 375,803 retirees and beneficiaries

 

 

Recent performance:

After suffering 26.3 percent loss in fiscal 2009 because of the recession, the state retirement fund enjoyed a positive 25.9 percent return in the fiscal year that ended in March.

 

 

Local contributions and benefits:

Nassau County's contribution to the state system was $96.9 million in fiscal 2010; Suffolk's was $97.4 million. Last year, 19,305 recipients living in Nassau received a total of $496 million in payments, while 28,161 Suffolk residents received a total of $701 million.

 

Source: New York State comptroller

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