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Tier V troubles

Gov. David Paterson last week hailed the Legislature’s passage of a bill he described as the "most significant reform" of the state and local pension system in a quarter-century. That might be true, given the lack of any meaningful change for many years.

To many observers, however, the measure also could be labeled a major blown opportunity.

Why? Because much of the savings–an estimated $50 billion over some three decades–will not occur for years. And other provisions seem to lock in high costs.

The new Tier V applies only to new employees. Those currently in the pension system will see no change in benefits.

The measure’s provisions include:

  • an increase in the minimum age at which state employees can retire without penalty from 55 to 62 and a penalty of up to 38 percent for anyone who retires before age 62;
  • a requirement that employees continue contributing 3 percent of their salaries toward pension costs as long as they pile up additional pension credits;
  • a hike in the minimum years of service required to draw a pension, to 10 years from five years; and
  • a cap on the amount of overtime that can be considered in the calculation of pension benefits.

These steps, as far as they go, are not the problem. Rather, it is the bill’s exceptions and special provisions that are troubling.

Take the minimum retirement age. The age 62 threshold does not apply to members of the New York State Teachers Retirement System; they have a separate Tier V benefit structure that includes a minimum retirement age of 57.

Elsewhere, the bill takes a provision that for years has needed annual legislative approval and makes it permanent. Basically, it guarantees lifelong health benefits for all current and future retired teachers by requiring the teachers union to agree that any changes in benefits apply to both sets of teachers.

As for cost savings, these will be fairly modest for years to come. Yet pension contribution rates are expected to jump by 2011.

Some reform usually is better than none. But that’s no excuse for not doing more.

12/11/09 (c) 2009 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail rbj@rbj.net.


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