Private pension tax break sought to keep retirees in NY

ALBANY — A bill included in budget negotiations would double a tax break for private sector retirees in an effort to stem their exodus to states such as Florida where — as with teachers and government workers in New York — retirees pay no income tax on their pensions.

“The pensioners are heading to Florida and other places with their whole pensions, and that’s significant,” said Sen. Hugh Farley (R-Schenectady), who sponsors the measure. The measure would update the tax exemption for the first time in 35 years. “I think it’s only fair.”

Farley said that if the 1981 law that exempts a private-sector retiree’s first $20,000 of income from income taxes was simply adjusted for inflation, as much as $52,000 of a private pension would be exempt today. But his current bill, now included in state budget negotiations as part of the Senate’s Republican majority budget proposal, doesn’t go that far. It would phase in an increase until the measure caps at $40,000 of income in 2018.

The tax exemption would save most retirees a relatively small sum — from a few hundred dollars to under $5,000 a year — in taxes. That’s in part because private sector pensions, 401(k) savings plans and annuities typically are a smaller slice of income to those retired from the private sector compared to state pensions for public workers.

Public pensions are protected in the state constitution as “a contractual relationship, the benefits of which shall not be diminished or impaired.” E.J. McMahon of the Empire Center for Public Policy, a conservative think tank, said that hasn’t been challenged in terms of taxation.

Supporters of Farley’s bill say the measure would help low- and moderate-income retirees from the private sector be less dependent on Social Security benefits and savings.

Regions such as Long Island have larger pension packages and retirees would receive the biggest increase in tax savings under the proposal, McMahon said. “I think the argument is the fairness argument. Why would you treat . . . (private sector and public retirees) differently?” he said.

“People struggle when they retire and we know for a fact that, as a whole, people are not saving enough for their retirement,” said Bill Ferris, AARP’s legislative director. “People are leaving the state for a whole host of reason and we agree this is a step to keep people the state.”

The measure is sponsored in the Assembly by Assemb. William Magnarelli (D-Syracuse). His measure, however, isn’t included in the Assembly Democrats’ one-house budget proposal. That’s not unusual in budget strategy, but it signals less support from the Assembly.

The state Budget Division is reviewing the proposal. A state budget deal that could include the measure is due by April 1.

The proposal would mean the state would collect $136 million less in income taxes in the 2017-18 fiscal year, $224 million less in 2018-19, and $275 million less each subsequent year beginning in the 2019-20 fiscal year.

By Michael Gormley

michael.gormley@newsday.com@GormleyAlbany

Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.