Future Public Workers to Bear Wall Street’s Burden

Albany Legislators worked through dawn on March 15 to pass a controversial pension reform plan, creating a Tier 6, on the heels of a Tier 5 just two years ago, further eroding the retirement security that state and city public employees have earned, fair and square, for more than half a century.

Labor unions fought the good fight against passage of the new tier, and were able to win some concessions in the plan, touted by Gov. Andrew Cuomo and Mayor Michael Bloomberg as the way for struggling municipalities to save more than $80 billion over the next 30 years.

Disregarding the role of the financial industry in the 2008 stock market crash and housing market collapse that severely hurt the investment returns of many pension funds, Cuomo and company chose the politically expedient path by squeezing savings from so-called “unborn” public workers.

Intended to Offset Costs
The savings, which won’t kick in for many years, are meant to offset the spiraling costs of pension payments from local governments, which have grown from $1.4 million in 2002 to $12.2 billion in 2012, or 650 percent, in no small part from the economic slump.

Appearing to speak for both sides of the heated pension-reform debate, the governor, was quoted in the New York Times as saying, “Fight as hard as you can, and then understand there’s going to be some amount of reasonable compromise.”

Among Cuomo’s compromises are the following:

• The 401(k)-style pension plan originally proposed by Cuomo was adopted as an option for only nonunion workers earning $75,000 salaries or more.
• The current minimum retirement age of 62 was raised one year, to 63, instead of the originally proposed 65.
• The projected savings of $80 billion over 30 years dropped from $113 billion in the original plan.

Effective April 1, 2012, when Tier 6 takes effect, newly hired public employees, who can expect an average pension in the range of $20,000 a year, will have to contribute more for less. Their new contribution rates will rise through progressive levels depending on their salary as follows: Public employees earning up to $45,000 will pay 3 percent; $45,000 to $55,000 will pay 3.5 percent; and $55,000 to $75,000 will pay 4.5 percent. Newly hired public employees will pay their contributions over the course of their careers.

---

“We made a mistake when we allowed Governor Pataki and Mayor Giuliani to do away with the 3 percent contribution after 10 years and let the municipalities not put in as much as they can. The system worked for 70 years until we decided we were going to tinker with it.” – Gregory Floyd

---

Vesting Time Raised
Also, under Tier 6, employees will vest after 10 years instead of the current five years. To help reduce pension padding, the agreement changes the time period for the final average salary calculation to five years from three, and pensionable overtime for civilian and non-uniformed workers will be capped at $15,000, plus inflationary change.

“It’s either this or worse,” Assemblyman J. Gary Pretlow (D-Westchester) was quoted in the Times as saying. He said he was briefed by Assembly Speaker Sheldon Silver, who worked through the night to gather the votes to conclude the agreement.

President Gregory Floyd, who opposed Tier 6 on the grounds that strong pensions help build a middle class, often recalls the turning point in 2000, when $850 million in excess funds were drawn out of public pension funds and put into the city’s budget under Mayor Rudolph Giuliani.

A recent Chief Leader article noted that for agreeing to the so-called “restart,” unions received several benefits for their members, including a permanent pension cost-of-living adjustment and the discontinuing of employee contributions into the pension system after 10 years of service.

“We made a mistake,” Floyd told the Chief Leader, ”when we allowed Governor Pataki and Mayor Giuliani to do away with the 3 percent contribution after 10 years and let the municipalities not put in as much as they can. The system worked for 70 years until we decided we were going to tinker with it.”