Unions, Comptroller caution against new pension system

As Gov. Andrew Cuomo barnstormed the state last week to drum up support for his executive budget, union leaders and Comptroller Thomas DiNapoli sharply criticized the proposal to institute a new Tier VI pension system.

The changes ”“ which would come just two years after the state”™s most recent pension overhaul ”“ are projected to cut pension costs in half, saving public employers outside of New York City $83 billion over 30 years and public employees within the city $30 billion over the same time period.

In a Jan. 18 speech in Yonkers, Cuomo called the current pension system “economically unsustainable,” adding that the state”™s pension costs are projected to increase by 185 percent between 2009 and 2015.

“I think it”™s a difficult discussion, I think change is difficult, but the state is in a different place than it”™s been, the economy is in a different place, and these are reforms that had to be made years ago,” Cuomo said after the speech.

Under the proposal, employee contributions would increase from 3 percent to 4, 5, or 6 percent based on salary level; the retirement age would be bumped up to 65 from 62; the pension multiplier would drop from 2 percent to 1.67 percent for each year of credited service; and overtime would be excluded from pension calculations.

Additionally, a voluntary defined contribution option ”“ which Cuomo compared with a 401k plan ”“ would be offered to new employees.

The new system, if approved by the state Legislature, would not impact current state employees.

Westchester County Executive Rob Astorino said he supported the plan, despite the fact that it offers little as far as short-term relief.

However, leaders of the state”™s two biggest unions labeled the plan an attack on the middle class.

Civil Service Employees Association President Danny Donohue voiced concern that Cuomo is out of touch with the state”™s blue-collar workforce. The CSEA represents roughly a third of the 186,000 workers employed by the state.

“CSEA has no hesitation in saying that the proposal for a new public employee pension tier is an assault on the middle class and a cheap shot at public employees,” Donohue said in a statement.

He said while a 401k-style option would be attractive to public employees earning the highest wages, the average state worker needs more financial security than Cuomo”™s plan offers.

“It”™s a lot different for front-line career employees who have to worry about whether being at the mercy of Wall Street ups and downs will provide them with adequate retirement security 30 years from now.”

Public Employees Federation President Ken Brynien echoed Donohue, calling the Tier VI proposal “no more than a false choice of accepting severely reduced pension benefits or joining an inefficient 401k-style pension system.”

DiNapoli, the state”™s comptroller since 2007, said some discussions ”“ namely, the elimination of overtime from final pension calculations ”“ were merited, but largely defended the current system.

“Less than one half of 1 percent of the 385,000 retirees who are receiving pensions from us have pensions exceeding $100,000,” DiNapoli said at a Jan. 19 panel sponsored by the National Public Pension Coalition, adding that the average annual pension is about $19,150.

He added that just 2.4 percent of state operating funds contribute to pensions, which is below the national average of roughly 3.8 percent, and that with 77 percent of the state”™s retirees staying in New York, much of those retirement benefits are put back into the local economy.

“Over the past 20 years, including the meltdown of ”™08 and ”™09, $0.83 of every dollar in benefits paid to New York retirees have come from investment returns, not from employer or employee contributions,” he said.
In contrast, DiNapoli said that 401k plans would undermine retirement security, add uncertainty to the local economy, and place more pressure on the state should individuals”™ retirement savings fall short.

“The big concern I have is the more extreme proposals that suggest eliminating defined benefit pension plans and substituting them with 401k plans,” DiNapoli said.

Such 401k plans, he said, “were never set up or intended to replace pensions. They were designed to be a savings vehicle to supplement pensions and social security income, and I think they”™ve certainly proven to be inadequate to provide retirement security.”

 

TIER VI PENSION SYSTEM EXPLAINED:

Gov. Andrew Cuomo proposed the implementation of a new Tier VI pension system in his executive budget. Under the proposal:

• Employee contributions would increase from 3 percent to 4, 5, or 6 percent depending on salary level, and could increase or decrease, within limits, depending on economic conditions.
• Retirement age would be raised from 62 to 65, with early retirements prohibited.
• Pension multiplier would decrease to 1.67 percent from 2 percent for each year of credited service.
• Overtime and other payments would be excluded from formula used to calculate final average salary.
• An optional defined contribution plan, similar to a 401k plan, would be created for new employee.
• No current state employees would be impacted by the changes.