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Legislature Passes New Tier for Public Pensions

March 16, 2012
By Marc Bussanich, LaborPress City Reporter
Democrat Governor Andrew Cuomo scored another political victory by passing major pension reform yesterday, March 15 at the expense of angering the city and state’s unions. He hoped to achieve $113 billion in savings over 30 years in his original proposal, but settled for $80 billion. The compromise, and some of the others reached with legislators, didn’t do much, however, to appease labor.

According to the Governor’s office, some of the new provisions of Tier 6 include new employee contributions rates, which unions such as DC 37 say will result in lower benefits for new workers, an increase of the retirement age and a readjustment of the pension multiplier, among others.

(LP readers can view the new tier’s particulars by visiting the Governor’s website: )

James Parrott, Deputy Director and Chief Economist for the Fiscal Policy Institute, said his overall impression of the reforms is “a giant step backwards.” Parrott believes the pension reforms weren’t necessary because it provides no near-term budget savings.

Although the Governor didn’t get the $113 billion savings he was seeking, and the new retirement age for public workers is 63, and not 65 as originally proposed, Parrott said, “there is nothing good about this plan. There are less bad provisions than the original proposal, but there’s nothing good about it.”

Regarding the reduction in purported savings from $113 to $80 billion, Parrott said he never saw any support for those numbers, so as far as he’s concerned, the $113 billion might as well have been pulled out of the sky.

“But what we do know is that the actuaries for the retirement system had estimated a reduction in employer contributions to their employees’ pensions,” Parrott noted.

He explained that under the current Tier V structure, the annual employer contribution is 9.4 percent. “The actuaries projected under Tier VI a decline from 9.4 to 4.7 percent, a 50 percent reduction.” The adopted legislation actually calls for 6.4 percent employer contributions, but “it is still a significant reduction,” Parrott said.

Parrott believes that the only positive outcome that could have come from pension reform was reform of the Martin Act, the state’s security regulations act. The law allows the state’s attorney general to pursue cases of financial fraud, at least on behalf of private, but not public sector, pensions.

Apparently, legislation has been introduced to strengthen the Martin Act, which Parrott says is needed because the main driving force behind the high levels of employer pension contributions is the heavy losses sustained during the financial crash in 2008.

“There have been settlements with pension funds in other states who filed lawsuits on behalf of their pensioners against institutions engaging in financial fraud. New York should be pursuing similar lawsuits because potential settlements would bring in the necessary resources that would lessen high employer pension contributions, and actually produce more short-term savings than Tier 6 will produce.”

The state claims the new tier “increases employee contribution rates in a progressive fashion to ensure that lower paid state and local workers are not seriously affected.” For example, workers earning up to $45,000 will be required to contribute up to 3 percent, while workers earning $100,000 or more will contribute 6 percent.

Parrott said the way the contribution rates are designed is “the way you should do employee contributions….The Governor could have done this as a standalone plan.” However, the progressive employee contribution rates are within a broader context “that’s not good for employees being asked to pay more and receive less.”

Shaun Flynn, Director of Government Affairs for the New York State Nurses Association, said that nurses across the state, and particularly in the city, will be hurt by Tier 6.

The city’s Health and Hospitals Corporation nurses’ pension benefits already trail behind their private counterparts, noted Flynn. “With the retirement age increase, it’ll be more difficult for city hospitals to recruit and retain nurses.”

Flynn explained that the new tier hurts working women because women predominantly work in the nursing profession. The union has been trying to get recognition from the city that nursing is as physically hazardous as it is for policemen and firefighters, both unions exempted from Tier 6, but that the city has resisted.

Flynn mentioned that although the retirement age didn’t go up to 65, he said there are nurses, because of the physical and emotional job strains, that are already having difficulty reaching the current retirement age.

While NYSNA nurses in the city are not part of Tier V, which means they’ll see a big hit in their benefits after working under Tier IV for some time, nonetheless Flynn said all nurses, state and city, will take a financial hit from Tier 6.

He voiced Parrott’s suggestion that the state, rather than changing the pension structure, could have pursued lawsuits against investor fraud by reforming the Martin Act.

If there were any good provisions in the new pension plan, Flynn said it’s that nurses’ overtime earnings will go towards their pensions, which was to be eliminated in the original proposal, although overtime will be capped at $15,000 annually.  

“Many of our members are working overtime because the facilities they work in are chronically understaffed. It’s still fundamentally unfair for city nurses, whose contributions were not capped under Tier IV, but the cap at least allows for the OT earnings to go toward their overall pension benefit.”

Ryan Delgado, a spokesperson for the state’s AFL-CIO, wrote in a statement that, “Make no mistake, Tier 6 is not reform; it is an assault on the long-term economic security of nurses, teachers, firefighters and other workers.”

But E.J. McMahon, Senior Fellow at the Empire Center for NYS Policy, told LaborPress before the new plan was announced that the unions’ claim that their pension is only $19,151 per year “is grossly misleading.” He claims that the average pension benefit last year for non-uniform and non-pedagogical public employees was $31,653, regardless of service time.

“Of all the public employees who retired last year, one-quarter of them, or 4,431 people, who worked for 35 years received an average annual pension of $55,000.”

But Parrott responded by saying that, “We should value these things as actuaries would. When looking at the value of pensions and estimates of pension costs, age is the critical factor.” He noted that McMahon obviously used 35 years of service as a basis to reach a higher average pension benefit, which is not representative of the public work force’s number of working years.

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