Cost of fixing Tier 6 won't be affordable at all

How many times does the state pension system need to be "fixed"?

Just two years after union leaders and public employees led a successful fight to "Fix Tier 6," they're at it again.

Tier 6 is the retirement level for those who joined the public payrolls after April 1, 2012. Established by former Gov. Andrew M. Cuomo in the budget that year, Tier 6 introduced higher contribution levels and stricter retirement age measures in an effort to reduce pension costs.

But after years of advocacy, Tier 6 was changed in 2024, allowing pensions to be based on the final three years of average salary, instead of five. The move boosted payouts for the workforce's newest tranche and led to increased costs to local employers, including Long Island's towns, villages and schools. 

Now, there are even more "fixes" in the works, mostly involving employee contribution amounts, retirement ages and overtime caps.

But their actual objective is larger. They want to go back to an earlier time of more generous benefits.

"While we got these big victories, we're not done yet. We're systematically tackling the next issues that will make a difference," the Fix Tier 6 website, run by New York State United Teachers, says. "Our goal is to get our Tier 5 and 6 members to parity with Tier 4 members, in both contribution and retirement age."

Paying public workers appropriately, and providing them with solid benefit packages, is fair and important. Recruiting and retaining public sector employees is essential. But moving backward more than a decade, to a time when the economic and fiscal landscape as well as the benefits picture were far different, is not. The cost — to the state, localities and ultimately taxpayers — could be enormous. Talk about affordability. 

There are about 736,000 public workers statewide in the Employees' Retirement System or the Police and Fire Retirement System — the two entities overseen by New York State Comptroller Thomas DiNapoli. About 100,000 are on Long Island. About 63% of those Long Island workers fall into Tier 6.

Another 275,000 employees statewide are active members in the New York State Teachers' Retirement System, which is managed separately. Nearly 72,000 are on Long Island, and 44% of them fall into Tier 6.

That explains why this issue returns year after year, as more workers want benefits commensurate with their more senior colleagues.

This year's battle comes down to two main issues: employee contributions and retirement age. Tier 4 ERS members contribute 3% of their salaries toward their pension for the first 10 years of their service — and then they contribute nothing further. Workers in Tier 6 are faced with a range — contributing between 3% and 6% of their salaries, depending on what their annual earnings are, and they contribute throughout their time in public service. 

Meanwhile, Tier 4 employees can retire with full benefits at age 62, or as early as 55 as long as they worked for 30 years. Tier 6 employees can retire with full benefits at age 63, with just five years of service. But if they retire earlier, their benefits are reduced. 

The provisions are similar for teachers.

For those in the police and fire system, employees are focused on overtime rules. In Tier 2 and 3, there's no limit to how much overtime can be counted in pension calculations, a very generous proposition. In Tier 5 and 6, it's limited to 15% of annual earnings.

While newer employees may not have the same sweeteners as their older colleagues, their deal is still an extraordinarily lucrative one. Most private sector employees no longer have a pension of any kind, and often have similar discrepancies between more recent hires and those who've been around a while. The argument from union representatives and other advocates that workers somehow will leave their state jobs because Tier 6 isn't enough holds little water. 

And any change to existing guidelines will come at a cost — to everyone. No matter what's tweaked, pension payouts would rise, increasing costs for employers, including local and state governments, police departments and schools. Those employers are already facing tight budgets and higher health care costs. Add on increased pension costs, and already overburdened New York taxpayers will be on the hook. Those added costs come as thousands of retirees live out of state, bringing millions of dollars in pension payouts with them — none of which are subject to state or local taxes.

Advocates argue that pension funds are doing well, so they can afford Tier 6 changes. Similar arguments were made more than 25 years ago, when public workers in New York celebrated new cost of living adjustments and reductions to employee contributions. Then came the dot-com bubble burst, the financial fallout after the Sept. 11 terrorist attacks, and the Great Recession. Public pension contributions by local governments skyrocketed and taxpayers were left holding the bag.

For Gov. Kathy Hochul, whose top issue is affordability, it'd be imprudent to back an effort that will lead to increased taxes and a more unaffordable Long Island.

Hochul didn't introduce pension tier changes in her executive budget. And the conversation is just beginning. It's an election year, and Hochul and state lawmakers need union support. Leaving Tier 6 unchanged may be unlikely.

As they navigate that tricky political terrain, Hochul and lawmakers must remember how highly New Yorkers already are taxed. And union leaders must realize that if bills rise beyond what residents can afford, other changes, including workforce reductions or even taxing those out-of-staters' pensions, might be necessary.