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December 2, 2009


Teachers clean up on “pension reform”

E.J. McMahon

Buried in the so-called Tier V pension bill just passed by the state Legislature is an incredible set of special concessions to unionized school teachers in New York.  None of these changes were contained in Governor Paterson’s original “pension reform” proposal, which was a colossal missed opportunity to begin with.  The worst of the giveaways to teachers in the final bill–effectively locking in one of the fastest-growing, most difficult to control components of school district compensation costs–is not even mentioned in Paterson’s press release hailing the bill’s passage.

The teachers’ union had their way on three major items:

  • While the minimum full-benefit retirement age after 30 years service was raised from 55 to 62 for all other civilian employees, it will set be at 57 for teachers.  In 2007-08, the median retirement age for New York State Teachers Retirement System (NYSTRS) members was 58.
  • The Legislature promised to enact a three-month early retirement window for teachers who are 55 but have only 25 years of service.  Districts will greet this as a cost savings, but it also will shift a so-far uncalculated cost to an already stressed pension fund.
  • Last but not least, the Tier V bill makes permanent a temporary law, annually renewed since 1994, barring school districts from “diminishing” health benefits for retired school district employees unless “a corresponding diminution of benefits or contributions” applies to active workers.  Since changes in benefits for current employees must be collectively bargained, the provision effectively gives unions a veto on the matter.  This provision of Tier V, described the Assembly’s press release on the bill as “mak[ing] permanent retiree health protections,” goes unmentioned in the Governor’s celebratory release.

To be sure, the Assembly and Senate had long been in the habit of annually (and unanimously) rubber-stamping extensions of the retired teachers’ health coverage provision.  But as long as the provision was temporary, there was always a chance that some future occupant of the governor’s office would feel sufficiently emboldened to veto it or demand modifications as a condition for approval.  In general, any coveted benefit subject to periodic renewal also represents a significant point of potential leverage over the unions for a sufficiently reform-minded executive.

In one fell swoop, the Tier V bill will eliminate that leverage.  Further, it will embolden other public-sector unions that had been seeking the same permanent, perpetual benefits for their members.  The newly permanent provision for teachers becomes a precedent for everyone else.  Other public-sector units will now put strong election-year pressure on the governor and Legislature to give them same thing.  (Indeed, the Tier V bill also featured a four-year extension of compulsory arbitration rights for police and firefighters–another feature of current law that unions covet, for reasons explained here.)

Keeping in mind that the Tier V pension changes did not require bargaining with unions to begin with, Paterson and Legislature got very little from NYSUT in exchange for the special teacher goodies in the bill.  In fact, NYSUT’s sole concession apparently came down to this: while all other civilian employees in Tier V must contribute 3 percent of their salaries towards their pensions throughout their careers, teachers hired after Jan. 1 will pay 3.5 percent—a token one-half of a percentage point more, at a time when contributions are poised to increase by double-digit percentage rates.

According to the NYSTRS actuarial note pegged onto the Tier V bill, the hypothetical “entry rate” employer contribution for teachers under the new benefit structure will be about 26 percent below the rate for the current benefit structure.   This is equivalent to the projected savings for other Tier V non-uniformed members.  But, as in other areas, “it will be at least several years before [the change] has a noticeable impact on the employer contribution rate,” the actuarial note points out.

In the meantime, if the predicted path of employer contribution rate increases in the regular state retirement system is any guide, the rate for teachers is likely to rise from 6.17 percent to over 15 percent within the next few years.  NYSUT can always seek to claw back the benefit reductions before anyone in Tier V gets around to retiring–just as the union successfully did soon after Tier IV took effect in the early 1980s.  And again, districts are now more permanently stuck with costly early retiree health benefits–which, for example, amount to a $1 billion unfunded liability for the Buffalo city school district alone.

Unions are fond of using “fair share” analogies, but NYSUT is paying nowhere near its fair share for what it has gotten out of this bill.

The changes in police and fire pensions also included in the bill, especially the creation of a permanent employee contribution rate, will save more and represented a more significant change–but were balanced by the rote renewal of compulsory arbitration for those same unions.  Besides, when police and fire pensions are so much more expensive than those for everyone else, there’s scant rationale for pegging the contribution rate at the same 3 percent level as the one charged to non-uniformed employees, and below the 3.5 percent that will now be charged (but for how long?) to newly hired teachers.

Is the Tier V bill at least a step in the right direction?  Yes–only in the sense that if you are standing in Albany, face southwest and take one giant stride forward, you will be about three feet closer to an expense-paid vacation in Las Vegas.

8 Comments »

  1. One issue I don’t have an issue with is teachers retiring at age 57. The job requires a lot of stamina to speak on your feet all day.

    I’ve been in classes where a “dinosaur” was teaching, and it was not fun.

    Comment by TD — December 4, 2009 @ 1:09 pm

  2. I agree with the comment above that the job requires energy, stamina, flexibility, keeping up with the latest in information, and student social knowledge. They do battle daily with situations well beyond their subject at hand while standing on their feet for hours.
    It occurred to me that America’s ARMY of teachers should be allowed to go before they become antiquated but with due respect for caring and teaching our most precious resource for the future. Hold them to high standards while teaching, but after 25 years of service, encourage them go as it is a win - win situation for everyone from students to taxpayers to the teachers themselves. OR let the seasoned teachers at top salary job share with a young unemployed teacher for cost and energy effectiveness. Time to think out of the BOX.

    Comment by Liz — December 5, 2009 @ 5:55 pm

  3. At the end of this school year, I will be 59 years old and will have have taught for 24 years and 8 months, 1 month shy of 25 years. Finally along comes a one-time opportunity for 55/25, and I hear that the window of opportunity to take advantage of this is only going to be for 3 months. Three (3) months? Are they kidding? What kind of ridiculous window is that? What is the state thinking? How many people do they think they are going to entice with such a small window? Then I heard something even more ridiculous. I heard that this window will be available from June 1, 2010 (at the end of the school year when schools are in the middle of exams - what a disruption!) through August 31, 2010. Shouldn’t the window be from July 1st through September 30th? Wouldn’t that make more sense? I also heard that as an added incentive there may be a possibility that the state may offer “time” (possibly similar to incentives previously offered in the past such as offering one month for each year of service). That would obviously take care of getting rid of teachers like me who are on the fence, allowing the state to open up more Tier V positions at lesser dollars. Could this happen? Actually I am sick and tired of hearing that the state is broke. The retirement system is not or at least should not be discussed as though it were a part of the state budget.

    Comment by Beverly Arcarese — December 17, 2009 @ 11:56 pm

  4. I certainly hope that those of us who are over 55 yet one year short of 25 years of teaching, will be taken into consideration. It is frustrating to think that there is just one very small window of opportunity being offered after all of the lobbying that has taken place over the years. It would be beneficial for older/ higher paid teachers with 24 years of service too! It seems as though women, like myself, who chose to raise a family before starting a teaching career are being discriminated against! If the state could offer \time\ - one month per/ year of service ( as my \now retired\ former colleagues were offered in the past) it would help the budget, decrease the unemployment rate and spare much frustration for teachers who find themselves in need to retire without penalty!

    Comment by Pamela Buck — January 18, 2010 @ 6:18 pm

  5. [...] was first imposed in a temporary bill that was re-enacted annually until last year, when Paterson unwisely agreed to a provision making it permanent in exchange for a very modest tweak of p….  Citing the school district precedent, unions representing other groups of employees had been [...]

    Pingback by NY Fiscal Watch — June 23, 2010 @ 4:58 pm

  6. [...] This sounds an awful lot like the state’s last “pension reform” — the incremental, distinctly non-transforming restoration of the status quote ante known as Tier 5. [...]

    Pingback by The Torch — March 2, 2011 @ 11:16 am

  7. [...] opportunity on the pension reform front in New York.  Fifteen months ago, David Paterson gave us Tier 5; the Cuomo proposal, labeled “Tier 6″ by AP, sounds more like Tier 5-a, complete with a [...]

    Pingback by The Torch — May 16, 2011 @ 11:30 am

  8. [...] Cuomo’s plan might more accurately be described as Tier 5-A — a few steps beyond David Paterson’s 2009 pension reform without breaking the defined-benefit (DB) mold.  Cuomo isn’t going anywhere near a [...]

    Pingback by The Torch — June 8, 2011 @ 4:25 pm

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