Tier 6 reforms included in state budget

In a long-sought triumph for public-sector unions, state lawmakers and Governor Kathy Hochul have instituted changes to the Tier 6 retirement plan they said will make it easier to attract people to government jobs, an outcome critics have called unnecessary and expensive.

For the purpose of pension benefits, final average salary will now be determined according to the three consecutive years when an employee earned the most, rather than the current five years. Another reform extends until March 2026 the exclusion of a Tier 6 member’s overtime earnings when determining the employee’s contribution rate to their pension benefit. The latter change also applies to Tier 5 members. 

“These enhancements to an employee’s retirement benefits are intended to recruit and retain a much stronger and talented public workforce,” the governor’s office said in a message. Public-sector unions have been adamant that changes in the Tier 6 plan were needed if the state, counties, cities and towns are to replenish their diminished workforces. 

State Senator Robert Jackson, the chair of the Civil Service and Pensions Committee, who sponsored a bill calling for the final average salary change, credited “collaborative efforts with labor” for the changes. 

“In redefining the pension landscape for our diligent public servants, our efforts are not just reforms — they are a restoration of fairness and a commitment to the stability and prosperity of those who serve our community,” he said in a statement. “Today, we move forward, not just changing numbers, but ensuring that our public workforce thrives under a system that values their contribution as much as their dedication."

The president of the New York State AFL-CIO, Mario Cilento, called the reforms “the most significant improvement” for public-sector workers in more than two decades. “It marks a momentous stride towards restoring fairness and retaining invaluable public sector workers,” Cilento said in a statement. 

There were 11,620 vacancies across state government as of the end of last year, about 6.6 percent of the total workforce, according to the latest figures from Hochul’s office. New York City counted 18,360 vacancies among its municipal workforce late last year, or roughly 6.1 percent of the headcount included in the administration’s November plan. 

Tier 6, pushed through by then-Governor Andrew Cuomo in 2012 as the state faced an uncertain fiscal future, raised the retirement age from 62 to 63 for most workers hired after April 1, 2012. It also required them to contribute progressively more into their plans as their salaries increased, limited early retirement options, capped the amount of pensionable overtime pay and mandated the five-year final average salary calculation. 

Public unions and, increasingly, lawmakers, said the new pension tier increased inequality among public employees and, over time, made it difficult to entice qualified candidates to government jobs that, while they paid less than those in the private sector, could once be counted to offer good pensions.  

“The enactment of Tier 6 in 2012 severely rolled back pension benefits and dramatically increased pension costs for workers in critical jobs. Not only did those cuts deter people from entering public service, as we predicted, but they also led to high turnover among existing personnel,” Cilento said. “This change is an investment in our workforce and will help to alleviate financial strains.”

Henry Garrido, the executive director of District Council 37, the city’s largest public-sector union, also praised the changes.

“We commend Governor Hochul and the State legislature on passing a budget that includes much-needed reforms for Tier 6, including lowering the final average salary,” he said in an emailed statement. “This is an historic investment in public sector workers’ pensions that sets the stage to improve those benefits, which is critical to tackling the issues of recruitment and retention.” 

Unfunded mandate?

Critics of the pension reforms, though, said they were not needed and would institute financial burdens on state and local governments. The Citizens Budget Commission has said the reforms would cost the state and municipalities upward of $377 million each year.

Patrick Orecki, the CBC’s director of state studies, disputed the argument that Tier 6 was among the prime reasons for the state’s hiring woes. “Recruitment and retention, frankly, is something that every type of employer, public and private and every industry is experiencing for the most part right now. The labor market is pretty tight and it's tough to get people into jobs,” he said in a phone interview. 

As of the end of March, the New York State and Local Employees’ Retirement System (ERS),  had 386,122 active Tier 6 members, equal to 59 percent of the system’s active members, according to the state comptroller’s office. Tier 5’s active members totaled 29,490 while Tiers 3 and 4, which have the same benefits, together totaled 242,418. Active membership of Tiers 1 and 2 totaled just over 1,700, the comptroller’s office said.

Speaking ahead of the budget announcement, Orecki said Tier 6 “remains a very favorable benefit structure” and that having “a defined benefit retirement plan still remains an incredible asset.”

“And if a worker is considering the value of their public-sector job with Tier 6 versus just about any other private-sector alternative, they're going to find that Tier 6 is better,” he added. 

Following the announcement of the reform, Orecki said public-sector unions and their allies in the legislature would call for additional changes in the pension plan.

Among those that could be considered during the current legislative session or as part of next year’s budget discussions would legislation first introduced in 2009  by Brooklyn Senator Andrew Gournardes that would give employees who retire after 20 years of government service a 40-percent final average salary pension rather than the current 35 percent. 

This year’s reforms follow by two years those enacted along with the Fiscal Year 2023 budget that reduced vesting requirements for both Tier 5 and Tier 6 to five years from 10 years. 

In her budget agreement announcement last week, Hochul said the changes to the Tier 6 plan would help “rebuild our depleted public sector workforce at both the state and local levels.”

Noting her tenure as a board member of the Erie County town of Hamburg, she said that while there was once allure to become a government worker, “those days are over.” 

“So, I know what these investments will do to encourage people to stay, and we can recruit more people to be part of the extraordinary work that our public sector workers do every day,” Hochul said.

richardk@thechiefleader.com

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