What is the Legacy costs
Legacy costs are the ongoing costs arising from expenses that do not increase profit. Pension plans are a Prime example of legacy cost.
Destruction of the old expenditure
Legacy costs generally, costs associated with a company paying increased medical fees and other benefits costs for its current employees and retirees. Escalating legacy costs can be a big factor in the limitation of the competitiveness of the company; however, although these costs may have a negative impact on the company’s profit, workers ‘ rights advocates to note the ethical obligation of the employers to support the workers in these types of activities in the field of financing.
As a rule, larger, older and more established companies that have problems with spiraling legacy costs, because they have the most pension and healthcare obligations. In connection with these expenditures, many companies are taking steps to reduce legacy costs as much as possible. One example of this can be seen a tendency with the changes of their pension plan employees defined benefit plans with defined contribution plans.
Real World Example: Cutting Legacy Costs
In 2016, the citizen budget Committee (AAC), “non-partisan, non-profit organization pursuing constructive change in the finances and services of new York state” published a report entitled ““20-20-20-20” dilemma: Legacy stands in new York city budget.” In the report the AAC lights “giant chunk” of the budget of new York is dedicated to legacy costs, which then killed more than 20 percent of the annual budget and is projected to grow by 20 percent by 2020 to more than $ 20 billion.
In this case, the legacy costs include pension contributions and benefits for health insurance of pensioners, as well as the “debt service repayment[ing] bonds issued in the last capital project.” In the analysis of cross-border cooperation, the problem of reducing legacy costs include a possible credit downgrade if the payments in arrears are made. PGS, of course, supports to pay pensions and indicates that they are under the protection of the state Constitution, but the Commission assumes that “some infrastructure improvements” will “be funded by the current year’s resources” and that “annual proposals for improving benefits may be denied.”
In addition, common analysis of blood involves “bringing the retiree health care costs into line with other state and local authorities,” asking retirees share the cost of health premiums; “reform of the Union of charitable funds” for “the consolidation of additional medical services under the urban health insurance”; and the exclusion of a member of the part B medicare premium reimbursement benefit they claim that this is “unheard of in the private sector and a rarity even among civil servants.”
PGS estimates that these budget shifts would save the city up to $ 1.6 billion by 2020.