Old-fashioned pensions systems around the country, both public and private, are coming under ever-increasing pressure, a trend we detailed yesterday in “Think,” the first of a series of editorials on New York’s own public pension woes. Some companies, like IBM, are taking steps to adapt successfully by switching to more sustainable defined-contribution pension programs. Others, like General Motors, have dragged their feet while hemorrhaging under their old-style systems. In the corporate sector market forces motivate the change – Wall Street has rewarded IBM’s good management of its pension problem while GM’s stock continues to tank. New York’s pension system is under no such threat, however, which has permitted our politicians to fall asleep on the job.

But New York is more like GM than IBM. If anything, the Empire State makes GM look stingy. That takes some doing, since the automaker allows workers to retire after 30 years regardless of age and only recently started asking retirees to bear part of the costs of their health care, all for an army of former workers that outnumbers the current payroll on the order of 2.5 to one. Lest New York government employees go green with envy, the state lets most of them retire at age 55 after service terms starting as low as 20 years, while demanding little or nothing by way of contributions, as we reported yesterday.

New York’s public pension programs also generate enormous payouts. As with most defined benefit plans, pensions are based on a percentage of the worker’s final average salary. But New York is unusual among is governmental peers in offering some workers a plan that bases pensions exclusively on the final, normally best-paid, year of service. Only 6% of state and local pension systems set pensions based on one year; 62% use three years for the calculations and 19% use five, according to a report from the Citizens Budget Commission. Even for the many employees whose pensions are based on the average of the last three years of service, New York also includes overtime in its pension formula, setting it apart from 94% of other government systems.

This is similar to General Motors, but with key difference. If GM ever files for bankruptcy, it can force its unions to restructure their pension benefits or, in the worst case scenario, pass those pensions on to federal taxpayers, who would foot the bill for reduced payouts through the Pension Benefit Guaranty Corporation. No such luck for state and local pensions in New York. Taxpayers are already footing the bill, and the state constitution makes it illegal to cut benefits. Even if the state goes bankrupt.

The only solution is two-pronged: avoid making benefits for current employees more generous – an actual cut is constitutionally out of the question – and inject some sanity into pension provisions for future state workers. Yet both of these steps have proven too much for New York politicians, and not just for the usual suspects on the Democratic side of the aisle. In the 2005 session of the legislature, a scholar at the Manhattan Institute’s Empire Center, E.J. McMahon, writes in a report on the center’s Web site, 46 bills made it through both houses to increase pension benefits to the tune of more than $100 million. Governor Pataki signed at least six of those, including a boost of $50 million in “presumptive disability” benefits for city workers who may or may not have been disabled by illness working near ground zero after the September 11, 2001, attacks.

Expect more such give-outs now that the economy is booming again, at least if history is any guide. Since the state invests its pension kitty in stock markets via the Common Retirement Fund, the fiscal health of the system on any given day is largely dependent on stock returns. When the market is surging, politicians start feeling like they have extra money to burn. This happened most recently in the late 1990s. Mr. McMahon notes that thanks to enormous gains in the value of the fund’s portfolio, the state was practically able to stop paying any new contributions into the system. Then the gift giving started. In 2000, the legislature and governor eliminated employee contributions after 10 years of service for those hired after 1976 and gave all retirees an annual partial cost of living adjustment in their benefits. This has led to an increase in actual payments of 44% for the state programs covering municipal employees and firefighters and police outside New York City, as well as to the extraordinary rise in obligations we noted yesterday.

This aspect of the state’s pension crisis is a political problem, not an actuarial one – a result of making unsustainable promises, not a result of demographic changes. So it requires a political solution. But when some seemingly intrepid leaders have gone to bat for the sake of taxpayers, the results have been discouraging. New Yorkers might have thought that walking to work for three days was the price to pay for bringing transit-worker pensions back down to earth over the objections of an illegally striking radical union. Those New Yorkers were wrong. Their three days of December misery actually bought the union a $130 million give-back on some pension contributions and not a single change in the pension plan for future workers. What’s worse, the chairman of the MTA, Peter Kalikow, recently told the New York Times that he thought he had made a mistake in asking for the pension concessions to begin with. That example won’t exactly inspire other politicians to take on powerful unions in the future.

Some hope may be on the horizon. In our editorial rooms during the height of the transit strike a prominent Republican gubernatorial candidate, William Weld, referred to public pension reform as a “big enchilada,” suggesting that he understands the severity of the issue and thus that it could become a major issue in the upcoming campaign. Not a moment too soon. The current system can probably creak along for some time to come, delaying the moment of final reckoning. Nonetheless, New York’s politicians are inexorably running out of time to decide whether the state will be like IBM, headed for long-term stability, or GM, headed seemingly for the abyss.