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Source: Times Beacon Record Media
Contribution cap among pension reform ideas
Lawmakers prepare to negotiate after governor’s proposal of new retirement plan options
by Patricia Proven
January 19, 2012
In suggesting reforms to the New York State pension system, Assemblymen Dan Losquadro (R-Shoreham) and Steve Englebright (D-Setauket) are supporting legislation that would cap the yearly increase in public employers' pension contributions to 2 percent or the rate of inflation, whichever is lower.
The bill, A8505-2011 as sponsored by Assemblyman Tom Abinanti (D-Greenburgh), is designed to help local governments and school districts outside New York City stabilize their budgets by limiting the growth of pension expenditures, Losquadro said. Keeping pension costs in check would also better enable those taxing entities to stay within the state's mandated 2 percent tax levy cap, he added.
Pension costs are one of the biggest categories of spending — along with salaries and health benefits — for municipalities and school districts. Only a small portion of pension costs is eligible for exemption from the tax cap, he said.
If the Legislature were to limit the amount that employers kick into the state retirement system, the state budget would fund the remainder of pension costs owed to the employee, according to the bill.
Putting the onus on the state forces lawmakers to make necessary reforms to the pension system, Losquadro claims.
Englebright said he wants to bring the Abinanti bill to the negotiating table along with other pension reform measures, including ones Gov. Andrew Cuomo introduced as part of his budget presentation Jan. 17. "I thought he made a very strong argument for pension reform," Englebright said Tuesday. "His idea is one that actually I've been talking about for a long time."
Guv's plan for reform
After outlining the problem of school districts and municipalities seeing a 185 percent increase in pension costs from 2009 projected through 2015, Cuomo presented to the Legislature his plan to create a new employment level, Tier 6, for state or local government employees who are hired after the end of this year.
A tier is based on a worker's date of membership in the system and determines among other things how much employees must contribute toward their pension benefits. People hired under tiers 1 through 4 in the state system contributed 3 percent of their salary for the first 10 years of employment only; Tier 5 requires 3.5 percent for the entire time of employment.
Under Tier 6, new hires could choose one of two retirement investment options — either a defined pension benefit, requiring employees throughout their tenure contribute between 4 to 6 percent of their salary, depending on economic conditions and the overall state pension fund's performance; or a defined contribution program that resembles a conservative 401(k)-style fund, according to the legislators.
For the second option, employees would have to contribute 4 percent of their salary to be matched by the employer and could contribute more as federal limits allow, with the employer matching up to an additional 3 percent, Losquadro said.
The governor projects his proposal would save 50 percent of current costs to local governments, Englebright said.
Tier 6 employees taking the 401(k)-style pension investment would be vested after one year of hire, according to a release from the governor's office, as opposed to those taking the defined benefit program, who would be vested after 12 years of hire, Losquadro said. "The defined contribution option really, I think, is the better option of the two," he said.
Englebright noted that SUNY professors have a similar option now; through the TIAA-CREF mutual fund program, they are advised to put 40 to 60 percent of their contribution into a guaranteed return on their investment and the rest into an investment that is market dependent and somewhat riskier, he said. Similarly, Tier 6 workers who choose the defined contribution plan would be "buffered from excessive loss" by the guaranteed return aspect of the investment, Englebright said.
"One of the other benefits of TIAA–CREF is, it's your money," he said and, referring to Cuomo, added, "I am so pleased to hear he's taking TIAA-CREF as the model. I only wish that we had done that at the national level a couple years ago with Social Security, because I think the model is not a raid on the youth."
The Democratic legislator stopped short of completely embracing Cuomo's plan pending his discovery of just how closely the new hires' defined contribution option would follow the TIAA-CREF model.
Cost roller coaster
While Cuomo's reforms propose to save state and local governments money and protect the public employee from market downturns, the Abinanti bill seeks to remove for employers "the peaks and valleys" of year-to-year contributions, making them more even, Englebright said.
Not only are pension costs one of the largest unfunded mandates that municipalities and school districts have to bear, but they are also unpredictable, said Losquadro. As a result, he added, "it becomes almost impossible to plan long term when every year you're waiting for the comptroller to tell you what your pension contribution rate will be."
Over recent years, reductions in the state's overall pension fund due to underperformance in the stock market has led the state comptroller, based on the actuary's recommendations, to call for double-digit spikes in the employers' contribution to make up the difference, according to information provided by Comptroller Tom DiNapoli's office.
In 2008-09 and 2009-10, employers were required to contribute an average 8.5 percent and 7.4 percent of payroll, respectively, to the New York State Employees' Retirement System. Those rates were announced by the comptroller's office in 2007 and 2008. However, in 2009, the office reported that the global recession's impact on the $116.5 billion state Common Retirement Fund would drive the average employer contribution rate up to 11.9 percent of payroll for 2010-11. The rate rose again to 16.3 percent for 2011-12 and is projected to go to 18.9 percent for 2012-13, the office stated. Average employer contributions to the Teachers' Retirement System, also the Police and Fire Retirement System, are even higher.
Englebright noted that any proposal for reform needs to be considered in the context of the big picture. "During the fat years leading up to 2008," he remarked ... "the bountiful earnings of the portfolio that the state holds caused the comptroller to waive completely for many years any pension contributions" by schools districts and local governments.
The comptroller's press secretary Eric Sumberg said that's not quite the case, though close to it. Although the amount that public employers kicked into the pension fund was never zero, prior to 2008-09 "the investment returns were so good," Sumberg said, that the state required a very low contribution rate of employers, at times below 4 percent of payroll.
But now that Cuomo's plan for Tier 6 put forth "a very good long-term structural solution" to pension fund sustainability, Losquadro and other lawmakers might have the language of their proposed 2 percent cap on employers' pension contribution changed to apply only to pension benefits in tiers 1 through 5.
Losquadro said he's very happy with the governor's ideas, noting that the new tier would also calculate benefits based only on an employee's base salary and would not factor in overtime, sick days or vacation days. "Pension padding has really gotten out of control," Losquadro said. "We don't want to discourage individuals from taking overtime but at the same time we can't have those as liabilities on the pension system."
He suggested that employee contributions from pay earned above base salaries go into something like a 401(k) instead. |
Contribution cap among pension reform ideas
Lawmakers prepare to negotiate after governor’s proposal of new retirement plan options
by Patricia Proven
January 19, 2012
In suggesting reforms to the New York State pension system, Assemblymen Dan Losquadro (R-Shoreham) and Steve Englebright (D-Setauket) are supporting legislation that would cap the yearly increase in public employers' pension contributions to 2 percent or the rate of inflation, whichever is lower.
The bill, A8505-2011 as sponsored by Assemblyman Tom Abinanti (D-Greenburgh), is designed to help local governments and school districts outside New York City stabilize their budgets by limiting the growth of pension expenditures, Losquadro said. Keeping pension costs in check would also better enable those taxing entities to stay within the state's mandated 2 percent tax levy cap, he added.
Pension costs are one of the biggest categories of spending — along with salaries and health benefits — for municipalities and school districts. Only a small portion of pension costs is eligible for exemption from the tax cap, he said.
If the Legislature were to limit the amount that employers kick into the state retirement system, the state budget would fund the remainder of pension costs owed to the employee, according to the bill.
Putting the onus on the state forces lawmakers to make necessary reforms to the pension system, Losquadro claims.
Englebright said he wants to bring the Abinanti bill to the negotiating table along with other pension reform measures, including ones Gov. Andrew Cuomo introduced as part of his budget presentation Jan. 17. "I thought he made a very strong argument for pension reform," Englebright said Tuesday. "His idea is one that actually I've been talking about for a long time."
Guv's plan for reform
After outlining the problem of school districts and municipalities seeing a 185 percent increase in pension costs from 2009 projected through 2015, Cuomo presented to the Legislature his plan to create a new employment level, Tier 6, for state or local government employees who are hired after the end of this year.
A tier is based on a worker's date of membership in the system and determines among other things how much employees must contribute toward their pension benefits. People hired under tiers 1 through 4 in the state system contributed 3 percent of their salary for the first 10 years of employment only; Tier 5 requires 3.5 percent for the entire time of employment.
Under Tier 6, new hires could choose one of two retirement investment options — either a defined pension benefit, requiring employees throughout their tenure contribute between 4 to 6 percent of their salary, depending on economic conditions and the overall state pension fund's performance; or a defined contribution program that resembles a conservative 401(k)-style fund, according to the legislators.
For the second option, employees would have to contribute 4 percent of their salary to be matched by the employer and could contribute more as federal limits allow, with the employer matching up to an additional 3 percent, Losquadro said.
The governor projects his proposal would save 50 percent of current costs to local governments, Englebright said.
Tier 6 employees taking the 401(k)-style pension investment would be vested after one year of hire, according to a release from the governor's office, as opposed to those taking the defined benefit program, who would be vested after 12 years of hire, Losquadro said. "The defined contribution option really, I think, is the better option of the two," he said.
Englebright noted that SUNY professors have a similar option now; through the TIAA-CREF mutual fund program, they are advised to put 40 to 60 percent of their contribution into a guaranteed return on their investment and the rest into an investment that is market dependent and somewhat riskier, he said. Similarly, Tier 6 workers who choose the defined contribution plan would be "buffered from excessive loss" by the guaranteed return aspect of the investment, Englebright said.
"One of the other benefits of TIAA–CREF is, it's your money," he said and, referring to Cuomo, added, "I am so pleased to hear he's taking TIAA-CREF as the model. I only wish that we had done that at the national level a couple years ago with Social Security, because I think the model is not a raid on the youth."
The Democratic legislator stopped short of completely embracing Cuomo's plan pending his discovery of just how closely the new hires' defined contribution option would follow the TIAA-CREF model.
Cost roller coaster
While Cuomo's reforms propose to save state and local governments money and protect the public employee from market downturns, the Abinanti bill seeks to remove for employers "the peaks and valleys" of year-to-year contributions, making them more even, Englebright said.
Not only are pension costs one of the largest unfunded mandates that municipalities and school districts have to bear, but they are also unpredictable, said Losquadro. As a result, he added, "it becomes almost impossible to plan long term when every year you're waiting for the comptroller to tell you what your pension contribution rate will be."
Over recent years, reductions in the state's overall pension fund due to underperformance in the stock market has led the state comptroller, based on the actuary's recommendations, to call for double-digit spikes in the employers' contribution to make up the difference, according to information provided by Comptroller Tom DiNapoli's office.
In 2008-09 and 2009-10, employers were required to contribute an average 8.5 percent and 7.4 percent of payroll, respectively, to the New York State Employees' Retirement System. Those rates were announced by the comptroller's office in 2007 and 2008. However, in 2009, the office reported that the global recession's impact on the $116.5 billion state Common Retirement Fund would drive the average employer contribution rate up to 11.9 percent of payroll for 2010-11. The rate rose again to 16.3 percent for 2011-12 and is projected to go to 18.9 percent for 2012-13, the office stated. Average employer contributions to the Teachers' Retirement System, also the Police and Fire Retirement System, are even higher.
Englebright noted that any proposal for reform needs to be considered in the context of the big picture. "During the fat years leading up to 2008," he remarked ... "the bountiful earnings of the portfolio that the state holds caused the comptroller to waive completely for many years any pension contributions" by schools districts and local governments.
The comptroller's press secretary Eric Sumberg said that's not quite the case, though close to it. Although the amount that public employers kicked into the pension fund was never zero, prior to 2008-09 "the investment returns were so good," Sumberg said, that the state required a very low contribution rate of employers, at times below 4 percent of payroll.
But now that Cuomo's plan for Tier 6 put forth "a very good long-term structural solution" to pension fund sustainability, Losquadro and other lawmakers might have the language of their proposed 2 percent cap on employers' pension contribution changed to apply only to pension benefits in tiers 1 through 5.
Losquadro said he's very happy with the governor's ideas, noting that the new tier would also calculate benefits based only on an employee's base salary and would not factor in overtime, sick days or vacation days. "Pension padding has really gotten out of control," Losquadro said. "We don't want to discourage individuals from taking overtime but at the same time we can't have those as liabilities on the pension system."
He suggested that employee contributions from pay earned above base salaries go into something like a 401(k) instead. |
Contribution cap among pension reform ideas
Lawmakers prepare to negotiate after governor’s proposal of new retirement plan options
by Patricia Proven
January 19, 2012
In suggesting reforms to the New York State pension system, Assemblymen Dan Losquadro (R-Shoreham) and Steve Englebright (D-Setauket) are supporting legislation that would cap the yearly increase in public employers' pension contributions to 2 percent or the rate of inflation, whichever is lower.
The bill, A8505-2011 as sponsored by Assemblyman Tom Abinanti (D-Greenburgh), is designed to help local governments and school districts outside New York City stabilize their budgets by limiting the growth of pension expenditures, Losquadro said. Keeping pension costs in check would also better enable those taxing entities to stay within the state's mandated 2 percent tax levy cap, he added.
Pension costs are one of the biggest categories of spending — along with salaries and health benefits — for municipalities and school districts. Only a small portion of pension costs is eligible for exemption from the tax cap, he said.
If the Legislature were to limit the amount that employers kick into the state retirement system, the state budget would fund the remainder of pension costs owed to the employee, according to the bill.
Putting the onus on the state forces lawmakers to make necessary reforms to the pension system, Losquadro claims.
Englebright said he wants to bring the Abinanti bill to the negotiating table along with other pension reform measures, including ones Gov. Andrew Cuomo introduced as part of his budget presentation Jan. 17. "I thought he made a very strong argument for pension reform," Englebright said Tuesday. "His idea is one that actually I've been talking about for a long time."
Guv's plan for reform
After outlining the problem of school districts and municipalities seeing a 185 percent increase in pension costs from 2009 projected through 2015, Cuomo presented to the Legislature his plan to create a new employment level, Tier 6, for state or local government employees who are hired after the end of this year.
A tier is based on a worker's date of membership in the system and determines among other things how much employees must contribute toward their pension benefits. People hired under tiers 1 through 4 in the state system contributed 3 percent of their salary for the first 10 years of employment only; Tier 5 requires 3.5 percent for the entire time of employment.
Under Tier 6, new hires could choose one of two retirement investment options — either a defined pension benefit, requiring employees throughout their tenure contribute between 4 to 6 percent of their salary, depending on economic conditions and the overall state pension fund's performance; or a defined contribution program that resembles a conservative 401(k)-style fund, according to the legislators.
For the second option, employees would have to contribute 4 percent of their salary to be matched by the employer and could contribute more as federal limits allow, with the employer matching up to an additional 3 percent, Losquadro said.
The governor projects his proposal would save 50 percent of current costs to local governments, Englebright said.
Tier 6 employees taking the 401(k)-style pension investment would be vested after one year of hire, according to a release from the governor's office, as opposed to those taking the defined benefit program, who would be vested after 12 years of hire, Losquadro said. "The defined contribution option really, I think, is the better option of the two," he said.
Englebright noted that SUNY professors have a similar option now; through the TIAA-CREF mutual fund program, they are advised to put 40 to 60 percent of their contribution into a guaranteed return on their investment and the rest into an investment that is market dependent and somewhat riskier, he said. Similarly, Tier 6 workers who choose the defined contribution plan would be "buffered from excessive loss" by the guaranteed return aspect of the investment, Englebright said.
"One of the other benefits of TIAA–CREF is, it's your money," he said and, referring to Cuomo, added, "I am so pleased to hear he's taking TIAA-CREF as the model. I only wish that we had done that at the national level a couple years ago with Social Security, because I think the model is not a raid on the youth."
The Democratic legislator stopped short of completely embracing Cuomo's plan pending his discovery of just how closely the new hires' defined contribution option would follow the TIAA-CREF model.
Cost roller coaster
While Cuomo's reforms propose to save state and local governments money and protect the public employee from market downturns, the Abinanti bill seeks to remove for employers "the peaks and valleys" of year-to-year contributions, making them more even, Englebright said.
Not only are pension costs one of the largest unfunded mandates that municipalities and school districts have to bear, but they are also unpredictable, said Losquadro. As a result, he added, "it becomes almost impossible to plan long term when every year you're waiting for the comptroller to tell you what your pension contribution rate will be."
Over recent years, reductions in the state's overall pension fund due to underperformance in the stock market has led the state comptroller, based on the actuary's recommendations, to call for double-digit spikes in the employers' contribution to make up the difference, according to information provided by Comptroller Tom DiNapoli's office.
In 2008-09 and 2009-10, employers were required to contribute an average 8.5 percent and 7.4 percent of payroll, respectively, to the New York State Employees' Retirement System. Those rates were announced by the comptroller's office in 2007 and 2008. However, in 2009, the office reported that the global recession's impact on the $116.5 billion state Common Retirement Fund would drive the average employer contribution rate up to 11.9 percent of payroll for 2010-11. The rate rose again to 16.3 percent for 2011-12 and is projected to go to 18.9 percent for 2012-13, the office stated. Average employer contributions to the Teachers' Retirement System, also the Police and Fire Retirement System, are even higher.
Englebright noted that any proposal for reform needs to be considered in the context of the big picture. "During the fat years leading up to 2008," he remarked ... "the bountiful earnings of the portfolio that the state holds caused the comptroller to waive completely for many years any pension contributions" by schools districts and local governments.
The comptroller's press secretary Eric Sumberg said that's not quite the case, though close to it. Although the amount that public employers kicked into the pension fund was never zero, prior to 2008-09 "the investment returns were so good," Sumberg said, that the state required a very low contribution rate of employers, at times below 4 percent of payroll.
But now that Cuomo's plan for Tier 6 put forth "a very good long-term structural solution" to pension fund sustainability, Losquadro and other lawmakers might have the language of their proposed 2 percent cap on employers' pension contribution changed to apply only to pension benefits in tiers 1 through 5.
Losquadro said he's very happy with the governor's ideas, noting that the new tier would also calculate benefits based only on an employee's base salary and would not factor in overtime, sick days or vacation days. "Pension padding has really gotten out of control," Losquadro said. "We don't want to discourage individuals from taking overtime but at the same time we can't have those as liabilities on the pension system."
He suggested that employee contributions from pay earned above base salaries go into something like a 401(k) instead.
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