Fernando and Amanda Álvarez teach across the hall from each other at P.S. 72 in East Harlem, but they are facing a big gap as they plan for their golden years.
A 2012 change to the state’s pension policy means Amanda will have to work an additional nine years to receive a pension similar to Fernando’s.
They were two of more than 10,000 public employees who spent Sunday at a massive rally in Albany. Their goal: to “Fix Tier VI,” a reference to the 2012 pension law change. Unions argue doing so is a matter of fairness, and will help recruit and retain employees. Lawmakers and unions are still negotiating the potential pension tweaks, but any modifications would cost the state and local government billions of dollars over time.
The state’s top politicians, including Gov. Kathy Hochul, say they’re open to changing the policy as part of the state budget due March 31. There are few opponents, and people who a decade ago warned of the cost implications are keeping quiet now: Groups representing municipal leaders have no position, and many Republican lawmakers in the legislative minority said they’re supportive.
Assembly Speaker Carl Heastie, a Bronx Democrat, was fiery in his Sunday speech.
“I have been one of the biggest advocates of trying to get rid of Tier VI,” he said. “We started to whittle away at some of the changes, but this is the year we need to blow that s—t away.”
The Álvarez family illustrates what’s at stake. Fernando is part of Tier IV, which covers public employees hired between 1983 and 2009. Employees contribute 3% of their salaries to the pension fund for the first 10 years of work, then nothing afterward. If he works 30 years, he can retire at age 55 with 60% of his final average salary, calculated based on his earning years.
Amanda is several years younger than Fernando, and she started teaching two years after he did. She is part of Tier VI, which passed in the aftermath of the Great Recession. Employees like her contribute between 3% and 6% of their salaries to the state pension fund for the duration of their employment. To get a 60% pension, she will need to work for 32 years — but she faces a penalty that will cut her retirement earnings in half if she stops working before age 63.
“When we're discussing retirement, we're discussing where we're going to live and what should we do. … It's just so sad to know that I'm going to spend time without her,” Fernando said.
New York’s government pensions are managed by several centralized funds. They invest the contributions of government employees and their employers — which include cities, towns and school districts. The required employer contribution is low when the financial markets are booming. But when the stock market tanks, employers are required to make up the difference and rates rise.
That’s what happened in the first decade of the millennium. New York City Mayor Michael Bloomberg led municipal leaders from around the state calling for relief. The billionaire mayor said the city was on track to pay more for pensions than police and fire protection.
“If nothing is done, cities and counties are going to face even more severe budget cuts and tax increases — or both,” he said in 2012.
Because Tier VI required more contributions from employees and reduced the benefit levels, the pension fund’s long-term costs went down. A record run on Wall Street has helped keep payments in line; New York state projects it will contribute $3.4 billion to the pension fund this year out of a $260 billion spending plan.
“You want to be very careful,” he said. “If you do have a shock to the market or a period of recession or under-performance, you're only going to sock the taxpayers even more.”
The unions don’t have a specific piece of legislation that captures their requests, but generally they want to lower member contributions and decrease the retirement age.
But that ambiguity is strategic, said Ken Girardin, a fellow at the fiscally conservative Manhattan Institute. It means there isn’t a formal cost estimate for the proposals, which is required of all legislation that changes pension benefits.
“People want to retire sooner and pay less toward their retirement. Either of those things can happen only if you shift enormous costs to taxpayers,” he said.
Tier VI was projected to save state and local governments around $80 billion over 30 years when it was enacted. Girardin estimated making changes could have a price tag as high as $100 billion over the next three decades.
State Comptroller Tom DiNapoli, a Democrat who oversees the state’s largest pension funds, said more than half the current public employees are part of Tier VI. He spoke at the union rally on Sunday, and said that changes are an “appropriate conversation” and that the pension funds are in “very strong shape.”
“Our role is assessing the fiscal impact,” he said. “If there is a final consensus from the labor side as to what they'd like to see that has, that has not percolated to the top yet.”
Indeed, different unions have different priorities. Donald Nesbit, a vice president for District Council 37, said the New York City municipal workers his union represents would benefit most from a reduction in their required contributions.
“That’s the most important thing when we think of affordability and folks just struggling to pay their bills,” he said. “Instantly, you put money back in people's pockets.”
New York State United Teachers President Melinda Person said she mostly hears from members about lowering the retirement age to 55 for people who work for three decades.
“We believe 30 years should be a career, and it's a major factor for us in our ability to recruit and retain the best and brightest educators across the state,” she said.
The New York State School Boards Association, which represents entities that have to balance school budgets, said there are some parts of the state with a teacher shortage. The organization supports changes because of the retention problems, spokesperson Brian Fessler said.
Stephen Acquario, the longtime director of the New York State Association of Counties, lobbied hard to enact Tier VI. He has a more nuanced view of it now.
“We are struggling right now with a different type of workforce than we had 14 or 15 years ago,” he said. “As far as retaining employees in service that we have right now, perhaps there is a need to look at this tier and look and see if there are changes that need to be made.”
Girardin, the fiscal conservative, said his research shows no link between the new pension tier and recruitment challenges. United Federation of Teachers President Michael Mulgrew said his union has seen an increase in people leaving the profession after about five years, which he blamed on Tier VI.
Hochul, a Democrat, said in her speech at the Sunday rally that she has supported several previous changes to Tier VI and is open to more.
“I'm fighting for a fair pension plan because it's essential that we continue recruiting people,” she said.
The governor on Monday declined to elaborate on what specific changes could be coming.
