Governor Cuomo Announces Passage of Major Pension Reform

Governor Andrew M. Cuomo today announced the passage of a sweeping pension reform plan that will save state and local governments and New York City more than $80 billion over the next 30 years.

"For years, local governments have struggled to cope with soaring retirement costs, driving up taxes on New York families and small businesses," Governor Cuomo said. "This bold and transformational pension reform plan is a historic win for New York taxpayers and municipalities that will save more than $80 billion over the next 30 years, while preserving retirement security for public workers. Without this critical reform, New Yorkers would have seen significant tax increases, as well as layoffs to teachers, firefighters and police."

The state's rapidly growing pensions costs are one of the most expensive mandates for local governments. In 2002 pension payment from local governments were $1.4 billion and have grown to $12.2 billion in 2012, and increase of over 650%. The pension reform plan passed by the Senate and Assembly today recognizes the unsustainability of the current system and takes unprecedented steps to control growth, saving local governments and New York City more than $80 billion over the next 30 years.

The legislation puts in place a new Tier VI pension plan that includes:

• New Employee Contribution Rates: The new tier increases employee contribution rates in a progressive fashion to ensure lower paid state and local workers are not seriously affected. Employee contribution rates vary depending on salary:
• $0 - $45,000: 3%
• $45,000 - $55,000: 3.5%
• $55,000 - $75,000: 4.5%
• $75,000 - $100,000: 5.75%
• $100,000+: 6%

These rates remain substantially lower than the large majority of similar state systems around the country. The new tier impacts only newly hired employees. Existing employees and retirees retain all benefits.

• Increase of the Retirement Age: The pension reform includes an increase in the retirement age from 62 to 63 and includes provisions allowing early retirement with penalties. For each year of retirement prior to 63, employee pension allowances will be permanently reduced by 6.5%.
• Readjustment of Pension Multiplier: Under Tier VI, the new pension multiplier will be 1.75% for the first 20 years of service, and 2% starting in the 21st year. For an employee who works 30 years, their pension will be 55% of final average salary under Tier VI, instead of 60% under Tier V. This readjustment brings New York more in line with most other states and will save billions of dollars for taxpayers and local governments.
• Vesting: Under Tier VI, employees will vest after 10 years of service.
• Protect Local Governments From State Pension Sweeteners: The agreement requires the state to pre-fund any pension enhancers, ensuring that these costs are no longer passed to local governments.
• Adjustments to Final Average Salary Calculation to Help Reducing Pension Padding: The agreement changes the time period for final average salary calculation from 3 years to 5 years. To limit how much overtime can be used to determine an employee's pension, pensionable overtime for civilian and non-uniformed employees will be capped at $15,000 plus inflation, and for uniformed employees outside of New York City capped at 15% of base pay. Tier VI puts in place new anti-spiking measures which cap growth in salary used to determine pension allowances at 10% for all employees statewide. These reforms will take major steps toward addressing instances of abuse and pension padding. Tier VI also eliminates lump sum payments of unused sick and vacation time from the calculation of final average salary.
• Voluntary and Portable Defined Contribution Option: The legislation includes an optional defined contribution plan for new non-union employees with salaries $75,000 and above. In the modern economy, employees often change jobs multiple times and need pension portability. Many states, the federal government, and most private employers provide some form of defined contribution plans to their employees. The state will make an 8% contribution to employee contribution accounts. Currently, SUNY and CUNY offer such an option through TIAA-CREF that has been successful and popular. This is a voluntary option for those employees who prefer the portability and vesting feature not available with defined benefit options, and will help attract top talent to state government.
• Adjustments to SUNY/CUNY TIAA-CREF Plan: Under Tier VI, SUNY and CUNY employees who elect the TIAA-CREF plan will receive an employer contribution of 8% of salary for the first 7 years of service and 10% thereafter.
• Limiting Number of Sick and Leave Days that Can Pad Pensions: Tier VI reduces by half- from 200 to 100- the number of sick and leave days that can be used for retirement service credit.
• Salary Reform: Previous tiers allowed salaries from an unlimited amount of employers for calculating retirement benefits. Tier VI allows only two salaries for the calculation.
• Limiting Pension Benefit of High Paid Employees: For new higher paid employees, the amount earned above the Governor's salary (currently $179,000) will not be eligible for pension calculation under Tier VI.