New Pension Bill in New York Will Have New Pension Tier to Increase Retirement Age and Require Greater Employee Contributions

New York Governor Andrew M. Cuomo has introduced pension reform legislation that would impose a new Tier VI for future employees and save taxpayers $93 billion over the next 30 years, a figure that does not include New York City.

These reforms will reduce costs for local governments and schools and help get control of local property taxes for homeowners and businesses across the state. The bill also includes, at the request of Mayor Michael R. Bloomberg, a separate pension reform proposal for New York City and the uniformed services.

The new pension tier will increase the retirement age for new employees from 62 to 65, increase employee pension contributions and end so-called pension padding where employees accumulate substantial amounts of overtime in their final years of service to increase their pension.

“The numbers speak for themselves – the pension system as we know it is unsustainable,” Governor Cuomo said. “This bill institutes common-sense reforms to bring government benefits more in line with the private sector while still serving our employees and protecting our retirees. Reducing the skyrocketing pension burden faced by local governments and schools will also help get control of local property taxes that are driving New Yorkers from their homes and from the state.”

Since 2001, pension contributions by the state, local governments and schools increased from $368 million to $6.6 billion outside New York City.During the same period for New York City, pension costs increased from $1.1 billion to $8.4 billion.This level of growth raises property taxes and impacts government’s ability to provide services.

Provisions in the legislation include:

· Raising the retirement age from 62 to 65

· Ending early retirement

· Requiring employees to contribute six percent of their salary for the duration of their career

· Providing a 1.67 percent annual pension multiplier

· Vesting after 12 years instead of 10 years

· Excluding overtime from final average salary

· Using a five year final average salary calculation with an 8 percent anti-spiking cap

· Excluding wages above the Governor’s salary of $179,000 from the final average salary calculation

· Eliminating lump sum payouts for unused vacation leave from the final average salary calculation

· Prohibiting the use of unused sick leave for additional service credit at retirement

The reform of the state pension system would impact new hires by the state and local governments, including school districts. The City pension reform plan would cover new employees of New York City, including the uniformed services.

Mayor Michael Bloomberg said, “We have, for the last six months, been engaging with stakeholders in City and State government and our partners in municipal labor, on a vital question we’ve raised for years: how to protect both city services and the strength of our retirement funds over the long term.The Governor’s bill will do just that—by making sensible pension reforms that won’t impact a single current employee or existing retiree, this legislation will create $30 billion in savings over the next 30 years for the City, which will ensure we can afford the services and workforce that City residents depend on, and provide a secure retirement for municipal employees long into the future.”

Carol Kellermann, President of the Citizens Budget Commission, said, “Rapidly rising pension costs have squeezed the budgets of every government in New York State and contributed to New York’s high tax burden. New York needs an affordable pension plan that reflects current economic times and can be sustained over the long term. Governor Cuomo’s proposal for a new tier is fiscally responsible and would provide significant relief to taxpayers and local governments.”

Stephen J. Acquario, Executive Director of the New York State Association of Counties, said, “Pension costs are projected to rise at unsustainable rates for public employers and their taxpayers. Governor Cuomo’s Tier VI measure will provide much-needed long-term relief while still protecting the financial integrity of the retirement system.NYSAC supports the Governor’s proposal which will modernize the State’s pension system and provide efficiency and stability to ease the local burden of skyrocketing pension costs.”

Peter Baynes, Executive Director of the New York Conference of Mayors, said, “Governor Cuomo’s proposal to add a new Tier to the pension system is good news for local governments and their property taxpayers. The cost of the public pension system has grown out of control, and we need to take proactive steps to rein it in. This plan will ultimately save billions in taxpayer dollars while providing a stable, secure retirement system for public employees. We look forward to seeing the Governor’s bill pass this session.”

G. Jeffrey Haber, Executive Director of the Association of Towns of the State of New York, said, “Towns are always looking for responsible ways to minimize the real property tax burden for their residents.The current economic climate necessitates changes to the existing retirement formula.”

Timothy G. Kremer, Executive Director of the New York State School Boards Association, said, “School districts have been punished by escalating pension costs for the last several years. The current retirement systems are no longer sustainable.Saving $93 billion over time will provide welcome relief to school districts and taxpayers struggling to make ends meet.”

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