In this brief, we estimate the potential budgetary savings from replacing the current retirement plan for New York City municipal employees with lower-cost alternatives. We describe the results of a thought experiment that compares actual 2024 benefit payouts from the plan that covers most city municipal employees with the amount that would have been paid if all city employees in the plan had instead been covered by an alternative plan.

We consider three alternative plans: 

• a typical traditional defined benefit retirement plan offered in the private sector,
• a typical cash-balance retirement plan offered in the private sector, and
• an enhanced cash-balance retirement plan.

What We Found

We estimate that had NYC offered its employees a traditional defined benefit plan similar to one offered in the private sector, the city could have reduced its 2024 pension payouts by about $470 million, or about 7 percent.

Because the typical private-sector defined benefit plan is relatively generous and does not require employee contributions, these savings are not dramatic. However, this comparison may not be particularly meaningful, because few private-sector employers offer traditional defined benefit plans.

The cash balance plan examples may be more instructive. We estimate that a typical cash balance plan would have saved the city almost $4 billion (62 percent of actual outlays), and an enhanced cash balance plan would have saved the city about $1.6 billion (24 percent). Offering a defined contribution plan with the same employer contributions as a cash balance plan would generate similar savings.