Cuomo Signs Law to Enact Major Pension Reform

State and Local Governments, Including New York City, to Save More Than $80 Billion over 30 Years  

Governor Andrew M. Cuomo today, joined by Mayor Bloomberg and elected officials from across New York State, signed into law sweeping pension reform legislation that will save state and local governments, including New York City, more than $80 billion over the next 30 years. 

"For years rising pension costs have spelled disaster for local governments across the state. That finally changed this week, as we came together to put in place a bold pension reform plan that will save taxpayers more than $80 billion over the next three decades," Governor Cuomo said.

"By putting the interests of the people of New York State first, we overcame the obstacles that for so long have stood in the way of real reform and delivered one of the most critical, widespread fiscal reforms the state has seen in years. I thank Majority Leader Skelos, Speaker Silver, members of the legislature, elected officials across the state, and particularly Mayor Bloomberg for all the hard work that went into putting in place this important new pension reform."

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, an increase of over 650%.

The pension reform plan passed by the Senate and Assembly recognizes the unsustainability of the current system and takes unprecedented steps to control growth, saving state and local governments, including New York City, more than $80 billion over the next 30 years.

"Skyrocketing pensions costs have limited the ability of cities and counties to make investments vital to our future. So mounting pension costs have represented a double tax: first paid by today's residents, and a second tax on our future. One of the harder things to do in politics is to pass laws or take on projects where the heavy political lifting happens up front and the major benefits do not appear for years down the road,” said New York City Michael Bloomberg.

“But that is exactly what happened here because the Governor was willing to take on the challenge and lead. Our coalition of mayors and country executives from across the state supported him throughout and we are grateful members of the legislature took action so we can invest in the future of our cities and counties, and in the future of our citizens."

Senate Finance Committee Chair John A. DeFrancisco, noted "The pension reform spearheaded by Governor Cuomo is a real, substantive change from the status quo which will help to provide fiscal stability for taxpayers and local governments while putting New York on a path for a stronger, more sustainable future. I praise the Governor for his leadership and for bringing together the stakeholders and both parties to make this happen for the people of this state."

"I am a staunch supporter of unions, I am a beneficiary of the labor movement. This was the most difficult vote I have had to take in the 24 years that I have served the people. However, if we did not do pension reform, all of the hard working people of the state of New York – through tax increases, fees etc. – would suffer irreparable financial damage," said Assembly Deputy Speaker Earlene M. Hooper.

The new law puts in place a new Tier VI pension plan for workers hired after April 1, 2012. Existing employees and retirees retain all benefits. The new law 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:

o $0 - $45,000: 3%

o $45,000 - $55,000: 3.5%

o $55,000 - $75,000: 4.5%

o $75,000 - $100,000: 5.75%

o $100,000+: 6%

These rates remain substantially lower than the large majority of similar state systems around the country. 

Increase of the Retirement Age: The pension reform law 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 new law 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 law 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 new law 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.