"Pension Reform Act" Creates a New Tier V Pension Classification for Public Employees
January 13, 2010
On December 10, 2009, Governor Patterson signed into law the Tier V Pension Act which adds Article 22 to the Retirement and Social Security Law. The legislation creates a new Tier V pension classification for public employees who first join the New York State and Local Retirement/Police and Fire Retirement System (PFRS), the New York State and Local Retirement Systems/Employees Retirement System (ERS) and the New York State Teachers’ Retirement System (TRS) on or after January 1, 2010. Governor Paterson announced that this Legislation will provide more than $35 billion in long-term savings to New York taxpayers over the next thirty years. However, as reported by the Albany Times Union, others such as E.J. McMahon, Director of the Empire Center for New York State Policy, have challenged such claims.
Below are some of the highlights of the new legislation:
Employee Contributions
Most ERS and PFRS Tier V members will contribute 3% of their salary for all their years of public service. The legislation requires members of TRS to contribute 3.5% of their annual wages to the TRS for the duration of their employment. Presently, Tier IV members of ERS and TRS contribute 3% of their salary for their first 10 years of creditable service; members of PFRS are not presently required to contribute at all.
Vesting
No Tier V members will be eligible for service retirement benefits until they have completed a minimum of 10 years of credited service. Currently, employees participating in Tier IV ERS, PFRS and TRS become fully vested after only five years of credited service.
Overtime Earnings Restriction
Overtime earnings are generally included in the employee’s final average salary calculation used to determine a retiree’s pension allowance. In an attempt to prevent “salary spiking” in an employee’s final years of service, the legislation creates an “overtime ceiling” which limits the amount of overtime earnings that may be included in the definition of wages when calculating an employee’s final average salary. The "overtime ceiling" is $15,000 per year effective January 1, 2010. The “overtime ceiling” increases by 3 % each year thereafter.
Early Retirement Eligibility
The legislation also raises the minimum age for retirement without penalty for members of the TRS from age 55 with 30 years of service to age 57 with 30 years of service. While the legislation does not increase the age at which ERS members can retire without penalty (it is still 55), it does, however, increase the amount of the “penalty” that these members incur for retiring prior to reaching age 55.
Other Significant Changes
In addition to creating Tier V, several other issues which significantly impact public employers are addressed by the legislation. First, the legislation makes permanent the prohibition on reductions to retiree health insurance benefits or increases in retiree contribution rates by school districts, unless the same reduction in benefits or increase in contribution rates is made for the corresponding group of active employees.
Finally, the Legislature expressed an intent to enact an early retirement incentive for members of New York State United Teachers ("NYSUT") during a three-month window in calendar year 2010. If the Legislature follows through and enacts the incentive, NYSUT members in TRS and ERS who have reached age 55 and have accumulated 25 years of service will be permitted to elect to retire early during that window without penalty.
The ERS/PFRS as well as the TRS have created summaries for their members which outline the above-referenced changes implemented by the legislation as well as some additional changes not specifically cited here.
Howard M. Wexler contributed to this post.
