Pension Expenses

Over the past decade, pension expenses have risen an astronomical 500%. This rise in pension expense is due to the contributing effects of a few prime factors, not just one solo event. After detailed research gathered by John C. Liu, a New York City Comptroller, these contributing factors were narrowed down to a handful of dynamics, and two main contributors. During the early 90s, America was in a bull market, meaning the economy was experiencing a boom in large quantities. Mayor Giuliani fattened pension benefits between 1998 and 2001 when the city was raking in pension fund investment profits. This fatting was due to ignorant of rates fluctuating and how it will balance out over a long term. This increase in investment returns took the weight off pension expenses and put businesses in a state of mind as if the market will never stop rising. Companies and the state were getting to comfortable with the high rates. This bull market mentality was a match that lit the fuse of exploding pension expenses in years to come. The increased benefits during the bull market economy set in place by Giuliani took a turn for the worse when a flopped bear market hit over the past decade. This produced a steady decline in the actual return on plan assets causing a major increase in pension expense due to the gap between plan assets and benefit obligations.

Benefit enhancements that were implemented by Mayor Rudy Giuliani in the late 90s, they added a 40 percent additional cost to pension expense over the next decade. Mayor Bloomberg argues that this is the primary reason for the overall increase in pension expense. New York City taxpayers should stand behind this primary argument because of past mayor Rudy Giuliani’s actions in implementing these benefits for a short, in his term, city appeasement. Defined benefit pension plans involve some of the longest lived liabilities that a business has. This means that due to rate of return over the years, spikes and drops will...