The Trade-Offs About Pushing Off Pension Costs

Short-term relief sounds good. But it’s never a risk-free choice.

When people talk about proposals to smooth out unfunded pension liabilities over a longer period of time or issue pension obligation bonds, the conversation almost always gets framed too simply. It becomes “this will save money” or “this will cost money,” “this is a good idea” or “this is a bad idea.”

I think that framing misses the point.

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What “Smoothing” Actually Does

Spreading unfunded pension liabilities over a longer period can make the city’s annual contributions to our pension fund more manageable and reduce short-term budget pressure.

But it also shifts costs into the future and increases the total amount paid over time, because extending the schedule means paying interest over a longer period and delaying when those liabilities are actually funded.

In other words, it trades near-term relief for long-term exposure.

That may be a reasonable choice under certain conditions. But it is not a free benefit. It is a trade-off that carries risk.

You are trading something known now for something unknown later.

It also assumes that future budgets will be able to absorb those costs without disruption, which is not something any trustee or policymaker can guarantee. And the longer you stretch that timeline, the more sensitive the pension funding structure and the city’s finances become to changes in assumptions, market conditions, and fiscal priorities.

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The Same Logic Applies to Pension Obligation Bonds

Pension obligation bonds aren’t a guaranteed win or loss either. The concept is straightforward: borrow money at a fixed rate and invest it, with the expectation that returns will exceed the cost of borrowing.

If that happens, there is a financial gain. But that outcome is not guaranteed.

If returns fall short or markets move against you at the wrong time, the result can be additional financial pressure, now layered on top of existing obligations. There are also plenty of examples where they did not work out as planned in cities like New Jersey and Detroit.

This Is About Risk, Not Just Cost

In both cases, the core issue is the same.

You are shifting risk forward in exchange for present-day relief, and that uncertainty has real consequences.

Anyone involved in investing or pension governance understands this basic principle: you don’t evaluate an opportunity based only on what you might gain. You evaluate it based on the full risk-return profile.

What are the upside scenarios?
What are the downside scenarios?
And what happens if things don’t go as planned?

When things don’t go as planned, the impact shows up in city finances, on top of the underlying obligation to fund the pension system.

It affects budgets, debt levels and credit ratings, and long-term fiscal flexibility.

And those pressures don’t exist in isolation. They have knock-on effects for how the pension system is funded and for the broader financial decisions the city has to make in the future.

Too often, the conversation only focuses on projected savings or near-term relief without giving equal weight to market risk, timing risk, and long-term cost shifting.

Why This Matters for TRS Members

This isn’t just about financial theory. It’s about how these decisions are explained and communicated to members.

If TRS members are only being presented with the positive scenarios and best-case outcomes without a clear discussion of what could go wrong, it creates a distorted understanding of the decision.

At best, it’s overly optimistic framing.
At worst, it undermines trust.

Yes, your pension is guaranteed by the New York State Constitution. Your benefits are protected in state law. But nothing exists in a vacuum.

Even though these decisions show up first in city finances, they still may have indirect effects on the pension system, and members rely on trustees to understand and speak to those connections.

And when you can’t tell whether the message you are getting is coming from a trustee acting as a fiduciary or acting as a union official, that should be of concern.

A trustee’s responsibility is not to sell an outcome. It’s not to reassure at all costs. It is to evaluate decisions honestly, communicate them clearly, and respect members enough to trust them with the full complexity of the issue.

When that standard isn’t met, it should make any TRS member stop and take a closer look at who they’re trusting to make these decisions.

If you elect me to the TRS board, you can be assured that I will do better.