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Finally, what we’ve hoped for…

June 7, 2009 - John Stack

Gov Paterson finally made some inroads with an plan that isn’t just a one shot deal or borrowing against our future. His ‘pension reform bill’ makes some current, and long term changes – for the better- to the system.

            The big deal was getting Danny Donahue of CSEA and Ken Brynien to agree to start a new pension tier, tier V. This new pension tier can easily save localities and the State billions and billions over the next 30-40 years. One big change is increasing the age for retirement from 55 to 62. With so many current and future retirees leaving state service at 55, they end up getting a lot of pension money. By moving the retirement date back 7 years, these retirees will be collecting their pensions for fewer years, putting less burden onto the pension fund, and therefore the localities contribution to the pension fund. Also, the time to vest was changed from 5 years to 10 years. This will eliminate potentially tens of thousands of possible pension liabilities for people who come and work for the state for as few as 5-9 years. The individual amounts probably aren’t that great, but it still is probably a giant drain overall on the system. A third part of Tier V would be that enrollees would have to pay 3 % of their salary – for their whole career- towards their pension. Currently, state employees pay 3% of their salary for their 1st 10 years, then nothing after that. Again, this could save localities countless billions into the future.

 A slightly more controversial portion is to raise the retirement age for police and firefighters to 50, and to increase years of service to 25. Currently, governors have yearly (since 1981) given firefighters and police exemption allowing them to retire after 20 years, at any age, and receive a 50% retirement benefit. This is another item that will save the state billions into the future, and actually keep our best and brightest as cops and firefighters longer, rather than continually refilling the ranks with younger and less experienced newbies.

For years, state employees have looked forward to an ‘early retirement incentive’, or ERI. Typically, and ERI includes one extra month of serve added on for every year worked. So, if an employee was 55 with 30 years, he might wait a few months in hopes of an ERI, gaining himself an extra 2 ½ years of service. For an employee making $75,000 this could increase his yearly (NYS tax free) pension by nearly $4,000 per year. This year, Gov Paterson has chosen a different route. He is offering one time cash offers of $20,000 to leave state service. In the example above, the cost of this program would pay for itself over the previous ERI plans in about 5 years or so. Plus, employees won’t be waiting around for some type of incentive to leave, saving even more money by leaving sooner. In the above example, just in salary alone, an employee would only need to work about 3 months to get another $20,000 in pay. And that’s not including other benefits such as health insurance. The $20,000 is good for both sides.

Most groups that have voiced an opinion see this as a great move. The unions are for it. The business are for it. Local municipalities are for it. Plus, new hirees still get a darn good retirement benefit, even if not as lucrative as the current one. Some those still think the times of a guaranteed benefit pension plan are long gone. They would only be happy with some type of 401K plan. But, in reality, that would never, ever happen. If  the governor were to try and hold out for something like that, he would end up keeping things as status quo.

I applaud the governor for finally coming thru and delivering on some real historic reform. Its about time.


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