Gov. Kathy Hochul rallied with unions on March 8 for changes to the Tier 6 pension system. Lawmakers on Tuesday approved a package of bills that would make changes to the state’s pension system for government workers.
Darren McGee/Darren McGee/ Office of Governor
ALBANY — The state Legislature this week agreed to sweeten public employees’ retirement packages.
Gov. Kathy Hochul on Wednesday signed the measure into law alongside other legislation included in an omnibus bill for transportation, economic development and environmental conservation.
Article continues below this ad
The changes came amid intense pressure from labor unions that have been asking state leaders to boost the pension of government employees for years. In 2012, the state created the sixth pension tier in an effort to save state and local governments money. State employees disliked the tier because it has less generous benefits and required more years of work compared to previous plans.
But the changes also were driven by concerns of mounting pension costs for municipalities and the state, as many public sector employees were spiking their overtime hours in their final years of employment, which would boost their pensions. In some cases, especially for police and firefighters, that practice would enable workers to retire with pensions that paid more than their annual final salaries without overtime.
The full cost of the changes are estimated to be $557 million, about $118 million for the state and $440 million for municipalities, according to the governor’s office.
Make the Times Union a Preferred Source on Google to see more of our journalism when you search.
Add Preferred Source
Lawmakers passed the bill before the state comptroller’s office has completed a constitutionally required analysis of the fiscal impact of the changes.
Article continues below this ad
Bill Hammond, a senior fellow at the Empire Center, has studied the state’s pension system and said the economic impact on taxpayers will be significant. Earlier this month, the Empire Center published a report detailing how law enforcement officers in Suffolk County and the State Police had boosted their pensions by significantly increasing their overtime in their final three years of service.
“I don’t think that there was much of a case that this was needed,” Hammond said. “State employees, local government employees, already have pensions that are very generous by the standards of average Americans. They’re already allowed to retire earlier than most Americans, and they have a guaranteed pension that’s a large percentage of their salary. … And the claim that this is a way to improve recruitment, I mean, I suppose it has a marginal effect, but if you were really focused on recruitment, you’d be focused on salaries, not pensions.”
Here are some of the major highlights of the changes to Tier 6, which applies to state and local employees hired since April 2012.
Teachers can retire earlier
Teachers in the New York State Teachers’ Retirement System, as well as those enrolled in the retirement system in New York City, who are in Tier 6 would be able to retire at age 58 with 30 years of service. The previous age was 63.
Article continues below this ad
Changes in contributions
The bill also restructures employee contribution rates for Tier 6 members across several retirement systems.
The current law generally requires contribution rates ranging from 3% to 6%, depending on salary levels.
Beginning Oct. 1, members earning $75,000 or less would contribute 3% of wages. Those earning between $75,000 and $100,000 would contribute 4%. Those earning between $100,000 and $125,000 would contribute 5.25%, and those earning more than $125,000 would contribute 5.75%.
Article continues below this ad
Those contribution-rate changes would apply across a wide range of retirement systems, including state and local employees, as well as police and firefighters.
The bill modifies the definition of “base wages” used in contribution calculations. It provides that base wages include regular pay, shift differential pay, location pay and increased hiring rate pay. It excludes overtime payments during specific periods through 2028 — and it was not immediately clear why that pause was added to the legislation.
The bill also changes employer contribution obligations for the State University of New York System and City University of New York, community colleges and educational optional retirement programs. For those workers, beginning Oct. 1, their contribution rates would increase from 8% to 9% during an employee’s first seven years. It would increase from 10% to 11% thereafter.
The changes would apply to employees enrolled in the education department optional retirement program, state university optional retirement program and the board of higher education optional retirement program.
Article continues below this ad
Overtime changes
The bill increases the statutory overtime ceiling beginning Jan. 1. For many members who joined on or after Jan. 1, 2010, overtime ceiling would become $30,000 annually and would thereafter increase by 3% each year.
The bill changes how overtime can be included in pension calculations. Under current law, overtime earnings above 15% of annual wages are excluded from final average salary calculations. The bill increases the cap to 25% for members retiring on or after Jan. 1, 2027 — a cap that will still allow pensions to be boosted significantly.
This would likely impact employees whose pensionable earnings rely on overtime, including police officers, firefighters and correction officers.
Article continues below this ad
When will these changes take place?
Most changes take effect immediately but there are a handful of exceptions.
Contribution-rate changes largely take effect Oct. 1. Overtime changes will kick in this January.
Article continues below this ad