In May, it was nice of the ACRE to release a mysterious Conductors retirement numbers. This was done so that we could all be in awe. What the ACRE has failed to do is show us the costs associated for this Conductor against the costs for the new hires for the same pension plan. Let's compare their numbers and see who received the better deal.

Mysterious Conductor retires in May of 2004 with an average yearly salary of $77,000.00. Took a zero % wage increase in 2003. This cost him $2,310.00 in wages for 2003 and $925.60 for the first half of 2004, for a total of $3,235.60. He paid 3% of his salary towards the pension in 2004, which works out to be $1,155.00. (77,000.00 divided by 2, times 3%). He never had to make any medical co-payments for his medical plans.

So to get this pension and retire this Conductor paid a grand total of $4,390.60. People can argue about the money in his Vanguard account, which was taken away from him. The bottom line is he never contributed a dime towards any of the money placed in his Vanguard account. M-N contributed everything to his Vanguard account based on his earnings. We are comparing what it physically costs (out of pocket expenses) between these two employees.

Without the Tier Two offset this Conductor will receive $32,596.93 per year. It will take him less than 2 months to recover what he paid out of his pocket for this pension plan. If he lives longer than two months, every pension payment becomes gravy. He will ride the gravy train for as long as he can live beyond the first two months of his retirement.

Now let's look at the new hire. Say he hires out in 2004, at the age of 25, has a wife and child. He will go into the Empire Family plan for his medical. To make this example easy to follow, we will start him making 100% of the Conductors rate of pay when he hires out. (Really he comes in at 70% and it will take him 5 years to reach the full rate of pay). If he retires at age 55 with 30 years of service, he will pay the following for the MTA Defined Benefit Pension Plan.

ACRE took a zero % wage increase in 2003 to help fund this plan. Over the course of 30 years it will cost this employee on a day's paying job $90,001.60 in lost salary increases. To co-pay for his medical over the course of 30 years, it will cost him $327,551.80, this factors in a 10% annual price increase in his co-pay costs, and he is not even entitled to the lifetime medical. Factoring in 3% annual salary increases and contributing 3% of his salary towards his pension costs, he will pay $88,226.80 into his pension. This is a total cost of $505,780.20 over the course of his 30-year career. To figure his pension we will take the average of his final 3 years salary, which equals $141,460.80 multiplied by .02 times 30 years to come up with a yearly pension of $84,876.48. If we divide his yearly pension by his total pension cost, we see that it will take this new hire 5.96 years to recover what he paid into this pension. He must live longer than age 61 to reap any real pension benefits of this plan. Again this does not include the Tier Two offset.

So, which employee got the better deal? The guy who is retiring now, or the new employee that has to work here for the next 30 years? Who will have to pay for this ACRE deal?

Let's calculate his numbers if he stays till age of 60 with 35 years of service. The zero % wage increase will cost him $113,900.80. His medical co-payments will cost him $551,581.13. His 3% contribution towards the pension will cost him $112,122.26. For a grand total of $676,694.19. His retirement would be based on an average salary of $163,987.20 multiplied by .02 times 30 years, which equals $98,392.32, plus 1.5% times 5 years, multiplied by $163,987.2, which equals $12,299.04. His total retirement package is $110,691.36. Now divide his pension costs by his pension and we see it will take him 6.11 years to recover what he paid for this pension. This new hire must live longer than age 66 to reap any real benefits from this plan. Again, no Tier Two offset was included in these calculations.

The above numbers done were using a Conductors numbers on a straight day's pay. We will now use the salary numbers from this retiring Conductor as a starting point for our new hire. In other words it includes some overtime. New Conductor is making an annual salary of $77,000.00 and gets 3% salary increases for the next 30 years. Now let's figure out his pension. In 30 years this conductor will be making $181,455.62, he would have contributed $109,899.25 towards his pension. He would have to co-paid $327,551.80 for his medical. He would have lost $109,899.25 in wages due to taking a zero % wage increase in 2003. His total cost for the pension becomes $547,350.30. His pension becomes his average salary of $176,221.81 multiplied by .02 times 30 years, which equals $105,733.08. To recover what he paid into the pension plan he would have to live 5.18 years into retirement. ($547,350.30 divided by $105,733.08)

If he worked for 35 years and stayed until he was 60, his would be making $210,356.80.

He would have contributed $139,667.43 towards his pension. He would have co-paid $551,581.13 for his medical. He would have lost $139,667.43 for taking a zero in 2003, for a total cost of $830,915.99. To figure out his pension, average salary of $204,289.38 multiplied by .02 times 30 years to get $122,573.63. Plus 1.5% times 5 years, multiplied by $204,289.38, which equals $15,321.70. His total pension is $137,895.33. To figure his recovery cost factor divide $830,915.99 by $137,895.33 and we get 6.03 years into retirement.

Let us look into the medical co-payments for a minute.

In 2004 at 70% of the Conductors rate the medical co-pay equals 4.6% of their salary.

In 2004 at 100% of the Conductors rate the medical co-pay equals 3.2% of their salary

In 30 years in 2033, at 100% of the Conductors rate with 3% annual salary increases, and 10% annual increases in the new hires medical co-pay, the medical co-pay now becomes 21.55% of a Conductors salary.

In 35 years in 2038, using the same formula factors, the medical co-pay now becomes 29.94% of a Conductors salary.

Way to go ACRE. By including all future adjustments for medical co-payments in the contract language for this pension. In the future, the new hires will be spending almost a third of their salaries just for medical co-payment costs. Who did your actuarial work on these medical co-payments? It will take on average, for a new hire six years worth of pension payments to recover their costs that they put into the pension system. Again, where are the actuarial figures for this pension plan? Did you even consider running the pension numbers for the new hires? Not to worry, Mike and Tony will be long gone before the new hires realize that they have been totally screwed. They picked up the entire tab for the guys walking out of the door today, who are paying absolutely nothing for this pension plan.

See the attached five appendices for detailed flow charts on medical co-pays, salaries, 3% cost for pension plan, taking a zero in 2003 and ACRE's mysterious retiring Conductor.