(March 16, 2012) — New York’s legislature has approved Governor Andrew Cuomo’s pension overhaul while the state’s Comptroller Thomas DiNapoli has voiced that the approval will not significantly lower pension costs for local governments in the short-term.
The legislature’s approval involves raising the retirement age for most new workers and offering a 401(k)-type option to nonunion employees for the first time.
“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.”
Meanwhile, Thomas DiNapoli, New York’s Comptroller, noted in a statement that while the agreement reached between the Governor and the Legislature on Tier VI — which the governor said would save billions of dollars over the next three decades for new employees — the new tier will not significantly lower costs for local governments in the short run. “There is no quick fix to addressing rising pension contribution rates driven by the financial market meltdown in 2008-09,” he said. “Despite strong investment returns and two new pension tiers in less than three years, these rates will likely continue to increase in the near future.”
The state’s rapidly growing pensions costs are one of the most expensive mandates for local governments, the governor explained in a release. 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,” the release asserted.
The legislation puts in place a new Tier VI pension plan that includes:
1) New employee contribution rates.
2) An increase in the retirement age from 62 to 63, including provisions allowing early retirement with penalties.
3) Vesting: Under Tier VI, employees will vest after 10 years of service.
Earlier this week, Assembly Democrats rejected the governor’s proposal to raise the retirement age and offer a 401(k)-type option to future workers. Last month, Cuomo stated that he would be willing to take the risk of a government shutdown to create a cheaper pension system. “It is one of the seminal clashes of this budget and of my administration,” Cuomo told reporters, as initially reported by the Wall Street Journal. “The question is, does this body, does this government, does this Legislature perpetuate a pension system that is on the verge of bankrupting the state … or does the Legislature respond to the needs of the people?”