Buried deep in the state Legislature’s budget is a frightening proposal that if signed into law by Gov. Kathy Hochul would increase the pensions cost for state and municipal employers to the tune of $4 billion.
To understand the impact of the Legislature’s sleight of hand ploy, a walk down memory lane will be helpful.
At the turn of the century, combined annual taxpayer contributions to the state’s defined benefit pension system was $1 billion. By 2010, that figure grew to a staggering $10 billion. (In recent years the cost has been about $16 billion annually.)
To address the ticking pension “time bomb,” Gov. David Paterson persuaded the Legislature to support a modest modified pension plan known as “Tier 5” that covers employees hired on or after Jan. 1, 2010.
While the Tier 5 benefit would cost less, there was a major flaw: New York City employees were not included in the plan.
After taking office in 2011, Gov. Andrew Cuomo realized that the Paterson initiative was not enough to shore up the pension system.
So, in 2021 Cuomo proposed “Tier 6” to further contain defined benefit pension costs. That bold reform was projected to save state and municipal governments $113 billion over 30 years.
Tier 6 benefit changes included:
- An increase in the minimum full benefit retirement age from 62 to 63.
- Higher employee contribution rates, ranging from 3% to 6%, for those earning $75,000 or more.
- An adjustment in the final average salary calculation to cover five instead of three consecutive highest paid years, effectively reducing the base in most cases.
- A $15,000 cap, indexed to inflation, on pensionable overtime, which was unlimited for pre-2010 hires.
In addition, unlike Tier 5, it included New York City police and firemen hired after April 2012.
On the 10th anniversary of the Paterson–Cuomo reforms, the Empire Center for Public Policy released a report in December 2021 titled “Tiering Up: The Unfunded Business of Public Pension Reform in New York,” prepared by E.J. McMahon.
In his report, McMahon wrote “The Tier 5 and Tier 6 changes combined are saving New York state and local governments outside New York City more than $1 billion this year, reducing total employer contributions by about 15% compared to what would have been billed to cover workers under previous plans.”
This is all well and good; nevertheless New York’s public pension system plans are very generous. Benefits are in the range of 50% to 75% of final average salaries. On Long Island, for example, several retired school district superintendents are receiving north of $200,000 a year. And don’t forget recipients are exempt from paying New York State and municipal income taxes on their annual benefit.
That’s not all. “State and local employees in New York,” McMahon pointed out, “also belong to the federal Social Security system supported by combined employer and employee payroll taxes whose benefits can raise their annual post-retirement incomes to more than 100% of pre-retirement earnings.”
Not a bad deal.
But the public employee unions are never satisfied. Hence, in an election year, they are using their clout to pressure legislators to sweeten the pension pot for members who have been employed since 2012.
On March 26, the New York Post reported “state lawmakers are set to make it easier for teachers, cops and other state workers to pad their pensions—and leave taxpayers footing the nearly $4 billon bill….”
Under Tier 6, a retiree’s final benefit is based on average salary over the last five years on the job.
Under the new legislation, the final average salary will be based on the last three years of service.
Empire Center analyst Ken Girardin has written that the new rule “would retroactively increase the pensions for a small group of people who have retired in the past two years and raise the future pensions for roughly half of New York’s public-sector workforce.”
This is an outrageous tax burden to place on civilian taxpayers, many of whom are struggling to make ends meet and do not have a guaranteed defined benefit pension plan.
Contact your state legislators and tell them this expensive and unfair sop to the unions must be rejected.
The New York Conservative Party, of which I am a member, should deny its nomination to any Republican who supports the pension giveaway.
