Less than two months after signing legislation which provided an early retirement incentive to members of the New York State United Teachers (“NYSUT”) (reported on here), Governor Paterson has signed another early retirement incentive into law. Unlike the prior early retirement incentive which was limited to members of NYSUT only, this legislation is open to public employees across the State regardless of union affiliation. In addition, public employers have the option of deciding whether to offer this early retirement incentive to their employees. Finally, unlike the prior legislation, which spread the cost of funding the legislation across all public employers, only employers who choose to offer this early retirement incentive to their employees are obligated to fund the cost related to their employees over a five year period, with the first payment due on February 1, 2012. According to the Governor, this Legislation will save the State alone approximately $320 million by the close of the 2011-12 fiscal year.

The Legislation consists of two parts, A and B, each of which offer different benefits. An employee’s eligibility depends upon whether the employer opts into one or both of the incentives. Upon choosing Part A or B, or both, the employer must either enact a local law, or adopt a resolution, which must specify the period during which the offer shall remain open. In the event that an eligible employee chooses to take advantage of the early retirement option, the employee must provide the employer written notice no later than 21 days before the end of the open period. Employees who wish to retire and meet eligibility for Part A, Part B, or both, or who are also eligible under the NYSUT 55-25 Legislation, may only retire under one retirement incentive.

Both Part A and Part B specifically exclude from the definition of “eligible employee” several job classifications, including certain elected officials, appointed officials and chief administrative officers. Employers should review the Legislation for a complete listing of those titles excluded from eligibility.

Part A of the Legislation allows employers to determine to which job titles will be eligible for the retirement incentive based on an employer’s layoff decisions. Specifically, under Part A, an “eligible title” is defined as any title which, but for this Legislation, would be identified for layoff, or, alternatively, any job title into which employees in job positions which have been identified for layoff can be transferred or reassigned under Civil Service Law, rule or regulation.

Under Part A, an eligible employee may receive one additional month of retirement service credit for each year of credited service, up to a maximum of three years of additional service credit. Employers who opt-in to Part A must do so by August 31, 2010, and must give employees between 30 and 90 days to consider the offer. However, school districts must opt-in no later than July 30, 2010 (by Board resolution), and the open periods cannot extend beyond August 31, 2010. If there are more employees interested in the incentive than positions targeted in that title, the Legislation requires that eligibility be determined by seniority.

In order to meet the eligibility requirements for Part A, an active employee (as defined in the legislation) must be at least 50 years of age with 10 or more years of service. All employees retiring prior to age 55 are still subject to a benefit reduction. In addition, members subject to Tiers II, III, & IV who retire prior to age 62 with less than 30 years of service will also be subject to a benefit reduction. If an employee re-enters public service after enjoying the benefits provided under Part A, the employee will have to forfeit or repay whatever benefit was received under Part A, plus interest. Finally, the benefits in Part A may be combined with any local incentive offered by an employer only if the employer elects to allow its employees to accept both the local and State provided incentive.

Part B of the Legislation closely mirrors the 55-25 Legislation that was passed in April for members of NYSUT. Pursuant to Part B, eligible employees must be least 55 years of age and have a minimum of 25 years of credited service. Under Part B, eligible employees can retire early without penalty (currently, employees must be at least 62 years of age and have completed a minimum of 30 years of service to retire without penalty). Unlike Part A of the Legislation, Part B is not targeted and is open to all eligible Tier II, III, and IV members unless it is determined by the employer that an otherwise eligible employee holds a position that is critical to the maintenance of public health and safety. Similarly, if allowing an employee to retire early would result in a significant loss of revenue (or increase in overtime or contractual obligations) to the employer, that employee’s request for early retirement may also be denied. Employers must submit a list of excluded employees by July 1, 2010, otherwise, employees otherwise eligible for the benefit will be allowed to participate regardless of the employer’s determination that the position is critical to the maintenance of public health and safety.

Finally, like Part A, employers who choose Part B must give employees between 30 and 90 days to consider whether they would like to participate. Employers must opt-in to Part B no later than September 1, 2010, with the exception of school districts, which must opt-in by July 1, 2010.

Additional information concerning this new Legislation, including sample Board Resolutions and the forms that must be filed with the State Retirement System by employers and employees, may be found on the New York State Local Retirement System’s website.

Emily Harper contributed to this post.
 

Municipal providers of essential services have limited options when attempting to cope with the current fiscal crisis while still providing essential public services. Faced with dwindling revenue, they are also locked into collective bargaining agreements which require raises and/or “step” increases and lane movement. Consequently, while a non-unionized, private-sector employer may avoid layoffs by imposing a salary freeze, public employers have no such option. Without that flexibility, layoffs and a consequent loss of services by the public becomes the only option.

But, as a memorandum recently released by the Empire Center for New York State Policy concludes, a public sector wage freeze imposed through an enactment by the State Legislature is legal under both New York and federal law, if it is based on proper factual findings of fiscal emergency. Since its publication, the memorandum has received positive support from numerous news sources and political figures, including current Republican Gubernatorial candidate and Suffolk County Executive Steve Levy. According to the memorandum, a State statute that freezes salaries, including abrogating so called “step” increases and lane movement in existing collective bargaining agreements, will be valid under both state and federal law as long as specific legislative findings demonstrate that the scope and duration of the freeze is reasonable and necessary to protect the public. A brief summary of the memorandum is provided below.
 

The memorandum concludes that existing New York and federal case law supports the legality of a legislatively imposed wage freeze in New York. In Buffalo Teachers Federation v. Tobe, 464 F.3d 362 (2d Cir. 2006), the United States Court of Appeals for the Second Circuit rejected a challenge to a wage freeze imposed by the Buffalo Fiscal Authority (the “Authority”), a public benefit corporation created by statute. Under the enabling legislation, the Authority had the power to impose a wage and/or hiring freeze upon finding that such a freeze was “essential to the adoption or maintenance of a city budget or a financial plan….” The Authority determined that due to massive budget deficits a wage freeze was necessary. The wage freeze prevented members of several unions from receiving two percent wage increases under negotiated agreements. The unions sued, claiming that the wage freezes violated the Contracts Clause of the United States Constitution.

The Second Circuit upheld the constitutionality of the wage freeze. The Contracts Clause provides that no state shall enact any law “impairing the Obligation of Contracts.” Whether a state law impermissibly impairs contract rights depends on: (1) whether the contractual impairment is substantial and, if so; (2) does the law serve a legitimate public purpose such as remedying a general social or economic problem and, if such a purpose is demonstrated; (3) are the means chosen to accomplish this purpose reasonable and necessary.

Applying the test to the case before it, the Second Circuit found there was a substantial impairment of contract rights. But the Court also found that: “The New York legislature had a legitimate public purpose in passing the statute because Buffalo was suffering a fiscal crisis, and the Legislature passed the statute to address specifically the City’s financial problems. In addition, the Court concluded that for a wage freeze that impairs public sector collective bargaining agreements to be deemed reasonable, it must be shown that the state did not: (1) consider impairing the ... contracts on par with other policy alternatives; nor (2) impose a drastic impairment when an evident and more moderate course would serve its purpose equally well; nor (3) act unreasonably in light of the surrounding circumstances. The Second Circuit determined that the Buffalo wage freeze statute passed Constitutional muster under this test because: the fiscal emergency furnished a proper reason to impose a wage freeze to "protect the vital interests of the community;" the existence of the emergency "cannot be regarded as a subterfuge or as lacking in adequate basis;” and the wage freeze was not “unreasonable or unnecessary to achieve the important public purpose of stabilizing Buffalo's fiscal position.”

In reaching its decision, the Second Circuit was guided by the New York Court of Appeals decision in Subway-Surface Supervisors Ass’n v. New York City Trans. Auth., 44 N.Y.2d 101 (1978). There, the Court of Appeals ruled that a statute implementing a wage freeze for all New York City employees, and which precluded payment of wage increases provided for in collective bargaining agreements, was constitutional. When it passed that statute, the Legislature found there was a financial emergency in the City of New York requiring State action to remedy the crisis. Because there was no dispute that there was in fact a fiscal crisis in the City of New York, the Court held that it was "undisputed" the wage freeze served an "important public purpose."

Finally, the memorandum concludes that the Taylor Law – which confers on public sector employers and unions in New York State a statutory right to bargain collectively – would not bar a wage freeze because that right to bargain “may be circumscribed by a proper exercise of the police power… to maintain a stable economic environment.” Committee of Interns v. City of NY, 87 Misc. 2d 504 (Sup.Ct. N.Y. Co. 1976). As with Contracts Clause challenges, a challenge under the Taylor Law can be defeated by a factual record demonstrating that the exercise of the State’s police power is necessary to protect the public from the fiscal crisis. In order to meet its intended purpose, a wage freeze statute should expressly suspend the Triborough Law, which prohibits a public employer from altering any provision of an expired labor agreement until a new agreement is reached, including automatic pay increases under a salary step or longevity schedule. This is necessary to ensure that these increases will not simply roll over or be deferred during the period of the freeze only to become due the year the freeze is lifted.
 

Yesterday, April 14, 2010, among ten bills signed into law by Governor David A. Paterson was Senate Bill S-6972/Assembly Bill 10065 (the “55/25 legislation”), which is the early retirement incentive bill for members of New York State United Teachers ("NYSUT") who belong to either the New York State Employee Retirement System ("ERS") or the New York State Teachers Retirement System ("TRS"). The 55/25 legislation was first announced as part of the Tier V pension legislation that was signed into law and previously discussed on this blog. The 55/25 legislation allows NYSUT members who are members of ERS or TRS, are at least 55 years of age, and have attained at least 25 years of creditable service to retire without the reduction in retirement benefits that would normally apply to retirement system members who are on Tiers 2, 3, or 4, who do not have 30 years of service.

Below is a summary of the 55/25 legislation and what it means for employers of NYSUT members.
 

1) Eligibility for 55/25 Legislation

•  Must be a member of ERS or TRS;
•  Must be a member of NYSUT;
•  Must be an employee of an educational employer (school district, board of cooperative educational services, vocational education and extension board, institution for instruction of the deaf or blind, State University of New York ("SUNY"), and community colleges) that employs members of NYSUT;
•  Must be at least 55 years of age and have 25 years or more of creditable service;
•  Must be on active service, which is defined as being in continuous service and on the payroll from February 1, 2010 until June 1, 2010.  However, the following classes of employees are deemed to be on “active service” by the legislation and thus eligible for the early retirement benefit:
  • Those employees on a paid leave of absence; and
  • Those employees on an unpaid leave of absence that does not exceed 12 weeks from February 1, 2010 to the commencement of the “open period” (which is June 1, 2010 for school districts).

2) Timing of Benefit

• The open period for employees of school districts begins on June 1, 2010 and ends on August 31, 2010. For SUNY and community colleges, while the open period is capped at 90 days, and must end on or before December 31, 2010, the legislation does not mandate a certain date for the commencement of the open period.  In order for the law to apply, the effective date of the retirement must be during the open period.
• Employees who wish to apply for early retirement without penalty under this benefit must fill out the appropriate retirement application not less than 14 days prior to the effective date of their retirement.

3) Cost of 55/25 Legislation

• The per-member cost for each employee who receives this early retirement benefit will be approximately 110% of the employee's final average salary.
• The total cost of this legislation is estimated to be $13.2 million, or .09% of payroll.
•  For every 100 employees that retire under this legislation, there will be an increased cost of approximately $260,000 to the State and $360,000 to participating employers.
•  The legislation estimates the number of people who will retire under this legislation will be under 1000.

4) Impact on Retirement Incentives in Collective Bargaining Agreements

• The legislation explicitly states that it does not affect in any way other retirement incentives provided by collective bargaining agreements that were negotiated prior to the effective date of the legislation.
   

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.

Earlier this summer Governor Paterson signed the “New York Government Reorganization and Citizen Empowerment Act” (Chapter 74, Laws of 2009). This sweeping piece of reform legislation was championed by Attorney General Cuomo as a way to improve local government efficiency and provide property tax relief to an already burdened citizenry. The Act, which will become effective on March 21, 2010 intends to make it easier to consolidate various governmental bodies such as Towns, Villages, and Special Districts. What remains to be seen, however, is whether the Act’s two new methods for consolidation/dissolution will truly benefit taxpayers and save money, or simply create a costly process counterproductive to the Act’s admirable goals. Equally uncertain is the Act’s impact on municipal labor and employment successorship issues arising out of consolidation or dissolution.

 

The first new method for consolidation/dissolution is more conventional than the second and involves: (1) the governing bodies developing and then publishing a plan; (2) a period of public input and public hearings; and (3) a vote by the effected governing bodies. In the case of towns and villages, an affirmative vote in a public referendum in the affected municipalities is required; an affirmative vote of the board of special districts effectuates the plan as to those entities.

The second method creates a citizen initiative process. Under this method, a petition must be filed bearing the signatures of a prescribed number of voters seeking dissolution or consolidation. A successful petition leads to a referendum on the general question of consolidation/dissolution. If the referendum passes, the governing bodies must prepare and adopt an implementing plan. This plan may be subject to a permissive referendum in certain limited circumstances. There is also a citizen cause of action established to compel the governing boards to comply with the citizens’ will as expressed by the referendum results.

Many critics --and even some objective observers-- believe the second method provides great potential for mischief, creates serious difficulties in formulating a workable plan, and will generate inevitably costly litigation. These consequences may result because the community will vote on the general concept of consolidation or dissolution without the benefit of a feasibility study or plan. If the referendum passes, the involved governing bodies must then create a plan regardless of whether the required consolidation or dissolution is workable or achievable. Because the requisite study generally costs tens of thousands of dollars and takes months to complete, it is questionable whether any savings will really be achieved. These kinds of concerns are already the subject of numerous conversations among municipal officials. In fact, the New York Conference of Mayors voiced its strong opposition to the Act during the public comment period for just these reasons.

From a labor and employment perspective, the Act also creates great uncertainty. Neither specifically addressed in the Act nor mentioned by its champions are the significant labor and employment successorship issues created by the consolidation and/or dissolution of public entities. For example, left uncertain are, among other things:

• Issues involving the civil service rights of the employees who are transferred and/or have their positions abolished.
• Issues involving the status of existing collective bargaining agreements covering the effected employees.
• Issues involving which, if any, unions will continue to represent the employees of the consolidated entity.
• Issues involving the Taylor Law duty, if any, to negotiate over the impact of the decision to consolidate and/or dissolve.

Unfortunately, there is very little case law from the courts or the Public Employment Relations Board (“PERB”) from which to draw guidance. The few decisions that do exist frequently look to federal law for the analytical framework to determine the types of successorship issues noted above. However, PERB’s present position on successorship issues, which draws its foundation from an opinion of counsel rendered in 1985 (Opinion of Counsel, 18 PERB ¶ 5002 (1985)), provides that the automatic application of private sector successorship doctrine is not appropriate, thereby leaving many of these questions unresolved. Accordingly, navigating the sea of these complex labor issues will be difficult, and is likely to result in hefty litigation costs which must be borne by the participating entities.

In addition to consulting with labor counsel to address the labor and employment issues mentioned above, those interested in learning more about the Act and its intended purpose can visit a new interactive website created by the Office of the Attorney General. The website can be found at www.reformnygov.com.