Provides retirement benefits for new entrants to certain public retirement systems

The purpose of Part B of the bill is to establish a new pension benefit for newly hired State and local government employees, which would affect future members of the New York State and Local Employees' Retirement System ("ERS") and the New York State Teachers' Retirement System ("TRS").

The purpose of Part C of the bill is to implement the terms of an agree- ment on pension benefits between the New York City and the United Feder- ation of Teachers.

Summary of provisions

PART A

Section 1 of Part A of the bill would add a new Article 22 to the Retirement and Social Security Law ("RSSL"), to establish a new Tier 5 in the New York State Police and Fire Retirement System ("PFRS"), and do the following:

* create a new RSSL § 1200 to set forth definitions for new RSSL Article 22.

* create a new RSSL § 1201 to provide that the provisions of RSSL Arti- cle 22 would be applicable to all employees who first joined PFRS on or after January 1, 2010.

* create a new RSSL § 1202 to require that members have a minimum of 10 years of creditable service in order to qualify for the service retire- ment benefit provided by RSSL Article 22.

* create a new RSSL § 1203 to provide that a member's final average salary would be calculated in accordance with RSSL Article 8 or Article 11, except that earnings classified as overtime pay in an amount in excess of 15% of such member's annual wages (that are not classified as overtime) would be excluded from the calculation of final average sala- ry.

* create a new RSSL § 1204 to require members who are subject to the provisions of RSSL Article 22 to contribute 3% of annual wages to the retirement system in which they have membership. A member who is enrolled in a retirement plan that limits the amount of creditable service he or she can accrue would not be required to make the 3 % contribution after he or she has accrued the maximum amount of service credit allowed by his or her retirement plan.

* create a new RSSL § 1205 to provide that any member who has joined the retirement system pursuant to RSSL Article 14 on or after July 1, 2009 may choose to have his or her retirement benefits calculated under RSSL Article 22 by filing a request with the state comptroller within 120 days of the effective date of Part A of the bill.

* create a new RSSL § 1206 to provide that the provisions of RSSL Arti- cle 11, including any plan that has been elected by an employer or is otherwise applicable under RSSL Article 8, would govern the retirement benefits provided under RSSL Article 22, except as provided in Article 22. In the event of a conflict, Article 22 will govern.

Sections 2 through 7 of Part A of the bill would extend permanently all temporary rights, privileges and benefits conferred by any general, special or local law with respect to certain members of a public retire- ment system; extend permanently the prohibition on negotiation of pension benefits, right of public employers and employees to negotiate for retirement benefits (other than those not requiring approval of the Legislature); and extend permanently the applicability of RSSL Articles 14 and 15 to new public retirement system members.

Section 8 of Part A of the bill would provide that members of an employ- ee organization that are eligible to join a special retirement plan pursuant to a collectively negotiated agreement with any state or local government employer, would be able to continue to enroll in that special plan after the enactment of this bill, until the date on which such agreement terminates.

Section 9 of Part A of the bill would amend Civil Service Law 209(4)(d) to extend for 4 years the authorization of the public employ- ment relations board to refer certain disputes, in the event an impasse exists in collective negotiations, to a public arbitration panel.

Section 9-a of Part A of the bill would amend RSSL § 500(c) to provide that members who join PFRS after January 1, 2010 would not be subject to the calculation performed by the State Comptroller to determine whether the provisions of RSSL Article 14 or RSSL Article 11 would govern their benefits.

Section 10 of Part A of the bill would make it effective 30 days after becoming law.

PART B

Section 1 of Part B of the bill would amend RSSL § 501(24) to provide, with respect to members who first join ERS on or after January 1, 2010, that overtime compensation paid in any year in excess of the overtime ceiling, as defined by this section, would not be included in the defi- nition of wages. For purposes of this section "overtime compensation" would mean compensation paid under any law or policy under which employ- ees are paid at a rate greater than their standard rate for additional hours worked beyond those required, including compensation paid under section one hundred thirty-four of the civil service law and section ninety of the general municipal law. The "overtime ceiling" means $15,000 per year on January 1, 2010, which would be increased by 3 % each year thereafter.

Section 2 of Part B of the bill would amend RSSL §§ 502(a) and (b) to provide that members who join ERS after January 1, 2010 will not be eligible for service retirement benefits until they have completed 10 years of credited service.

Section 3 of Part B of the bill would amend RSSL §§ 504(c) to provide that members who first join ERS on or after July 1, 2010 and retire prior to age 62 but after age 55, will have their pension benefit reduced by 1/15 for the first two years by which the early retirement precedes age 62, and 1/20 for each year that the early retirement precedes age 60.

Section 4 of Part B of the bill would amend RSSL §§ 516( a) to provide that members who first join ERS on or after January 1, 2010 and have 10 or more years of credited service will be entitled to a deferred vested benefit as provided in that section.

Section 5 of Part B of the bill would amend RSSL § 601(1) to provide that with respect to members who first join ERS or TRS on or after Janu- ary 1,2010, overtime compensation paid in any year in excess of the overtime ceiling would not be included in the definition of wages. For purposes of this section "overtime compensation" would mean compensation paid under any law or policy under which employees are paid at a rate

greater than their standard rate for additional hours worked beyond those required, including compensation paid under section one hundred thirty-four of the civil service law and section ninety of the general municipal law. "Overtime ceiling" would mean $15,000 per year on Janu- ary 1, 2010, which would be increased by 3% each year thereafter.

Section 6 of Part B of the bill would amend RSSL §§602(a) and (b) to provide that members who join ERS or TRS after January 10, 2010 would not be eligible for service retirement benefits until they have completed 10 years of credited service.

Section 7 of Part B of the bill would amend RSSL § 603(a) to provide that a uniformed court officer or peace officer employed by the unified court system who first joins ERS on or after January 1, 2010 may retire without reduction of his or her retirement benefit upon attainment of at least 55 years of age and completion of 30 or more years of service provided such individual shall be required to make member contributions provided for by RSSL 613(f) for all years of credited and creditable service.

Section 8 of Part B of the bill would amend RSSL § 603(i) to provide that members who join the ERS or TRS on or after January 1, 2010 would be eligible to retire prior to age 62 beginning at age 55 with a maximum penalty of 38.33%.

Section 8-a of Part B of the bill would amend RSSL § 603 to add a new subdivision (t) to provide that members who join TRF on or after January 1, 2010 would be eligible to retire without reduction in retirement benefits upon attainment of at least 57 years of age and completion of 30 or more years of service, provided that such members would have to make member contributions required by RSSL § 613(g) for all years of credited and creditable service.

Section 8-b of Part B of the bill would amend RSSL §§ 604(a) and (b) to provide that the service retirement benefit at normal retirement age for a member who joined TRS on or after January 1, 2010 would be:

(a) with less than 27 years of credited service: a retirement allowance equal to 1/60 of final average salary times years of credited service; and (b) with 27 or more years of credited service: a retirement allowance equal to 1/50 of final average salary times years of credited service not in excess of thirty years.

Section 8-c of Part B of the bill would amend RSSL § 609(b)(2) to provide that to obtain credit for previous service, members who join TRS after January 1, 2010, shall pay three and one-half percent of wages earned for service which predates the date of entry into TRS, with 5% interest.

Section 9 of Part B of the bill would amend RSSL § 612(a) to provide that a member who first joins ERS or TRS on or after January 1, 2010 and

reaches normal retirement age with 10 or more years of credited service will be entitled to a deferred vested benefit pursuant to RSSL § 604.

Section 9-a of Part B of the bill would amend RSSL § 613 to add new subdivisions (f) and (g), to provide that a member employed as a uniformed court officer or peace officer in the unified court system who first joins ERS on or after January 1, 2010 would be required to contribute 4% of annual wages to ERS, and members who first join TRS on or after January 1, 2010 would be required to contribute 3.4% of annual wages to TRS.

Section 10 of Part B of the bill would amend RSSL § 902(b)(1) to provide that employees who join the ERS or TRS on or after January 1, 2010 and are not explicitly affected by Section 9-a would be required to contrib- ute 3% of annual wages to ERS for the duration of their employment.

Sections 11 and 12 of Part B of the bill are intentionally omitted.

Section 13 of Part B of the bill would amend General Municipal Law § 90 to provide that the amounts received as overtime compensation under this section shall be regarded as salary or compensation for any of the purposes of any pension or retirement system of which the officer or employee receiving the same is a member, except as provided in RSSL 501, 601 and 1203.

Section 14 of Part B of the bill would amend Chapter 729 of the Laws of 1994, to make permanent the prohibition on diminution by a school district, board of cooperative educational services, or vocational education and extension board of the health insurance benefits provided to retirees and their dependents, or the contributions such board or district makes for such health insurance coverage, below the level of such benefits or contributions made on behalf of such retirees and their dependents by such district or board unless a corresponding diminution of benefits or contributions is effected from the present level during this period by such district or board from the corresponding group of active employees for such retirees.

Section 15 of Part B of the bill would express the intent of the legis- lature to enact legislation, in conjunction with the Executive, which would offer a three-month period during calendar year 2010, during which members of the New York State United Teachers (NYSUT) in TRS and ERS who have reached fifty-five years of age and have accumulated twenty-five years of service as a member of such retirement systems, may retire early without penalty.

Section 14 of Part B of the bill would make Part B effective on January 1, 2010, provided, however, that the amendments to RSSL § 603(a) made by § 7 of Part B of this bill would not affect the expiration of such subdivision and would be deemed to expire therewith.

PART C

Sections 1 and 2 of Part C of the bill would make technical amendments to RSSL §§ 602(a) and (b), and add a new subdivision (b-l), respective- ly, to require new members of the New York City Teachers' Retirement System (NYCTRS) and the New York City Board of Education Retirement System (BERS) who hold positions represented by the recognized teacher organization for collective bargaining purposes to have a minimum of 10 years of credited service to be eligible for pension benefits.

Sections 3 and 4 of Part C of the bill would make a technical amendment to RSSL § 612(a) and add a new subdivision (a-1) to that section, respectively, to provide that new members of the NYCTRS and BERS who hold positions represented by the recognized teacher organization for collective bargaining purposes who have 10 or more years of credited service would be entitled to a deferred vested benefit at normal retire- ment age computed in accordance with RSSL § 604.

Sections 5 and 6 of Part C of the bill would make a technical amendment to RSSL § 911(b)(1) and add a new paragraph (1-a) of that section, respectively, to require new members of TRS or BERS in certain pedagogi- cally-related titles, to contribute to the retirement system 3% of sala- ry for the first 27 years of credited service, instead of for 10 years as provided by current law.

Section 7 of Part C of the bill would amend RSSL § 604-i(e)(2) to require participants in the TRS and BERS special plans permitting retirement with an unreduced benefit at age 55 with 27 years of service, who become members after enactment, to contribute to the retirement system, in addition to their required 3% of salary regular member contributions, an additional 1.85% of salary for all credited service, instead of for 27 years of credited service as provided by current law.

Sections 8, 9 and 10 of Part C of the bill would amend provisions of the New York City Administrative Code and the Education Law which govern the tax-deferred annuity (TDA) programs administered in accordance with Internal Revenue Code § 403(b) by TRS and BERS for their members. One of the investment vehicles available to TRS and BERS TDA participants, who make voluntary, non-pension contributions to the TDA program, is a fixed investment program which currently requires the City of New York to guarantee a statutory investment return of 8 1/4% per year. Sections 8, 9 and 10 would reduce the guaranteed rate of interest on TRS and BERS TDA fixed accounts from 8 1/4% per year to 7% per year.

Section 11 of Part C of the bill would make Part C effective immediate- ly.

Section 2 of the bill provides a severability provision.

Section 3 of the bill would make it effective immediately, provided, however, that the applicable effective date of Parts A through C of the bill would be as specifically set forth in the last section of such Parts.

Existing law

At present, police officers and firefighters who join PFRS after January 1, 2009 may be subject either to the provisions of Article 11 or Article 14 of the RSSL, depending on a calculation performed by the Comptroller.

Employees who presently join ERS or TRS are governed by the provisions of Article Fifteen of the RSSL, which allow vested employees to retire with a pension benefit after reaching age 62 or older or age 55 or older with at least 30 years of service. Retirement with permanent reductions in a retiree's pension allowance is also currently permitted between the ages of 55 and 62 with less than 30 years of service. Employees current- ly joining ERS or TRS are required to make contributions equal to 3% of salary for their first 10 years of service. No employee contributions are required after achieving this threshold. All current employees become vested after 5 years of service. Finally, overtime is currently included in the final average salary calculation that is used to deter- mine a retiree's pension allowance; it would be excluded from the final average salary calculation under this proposal.

Employees who presently join ERS or TRS may retire with at least 20 years of service and receive a pension allowance equal to their final average salary multiplied by their years of service multiplied by a pension multiplier of 2%. For employees with less than 20 years of service this pension multiplier is 1.67%. This proposal would increase this pension multiplier threshold from 20 years to 27 years for TRS members.

Prior legislative history

Portions of PART B of the bill were included as Part CC of the 2009-10 Executive Budget (S.56-A/A.156-A), but not included in the active budg- et. Proposals containing aspects of Parts A and B were included in Governor's Program Bill # 32, which was submitted to the Legislature on May 27, 2009 but not introduced.

Statement in support

The State presently faces a fiscal crisis unprecedented in its history. To address this crisis, it is essential that the State control its long term cost drivers, including pension benefits provided to new employees. This bill would continue to provide employees with a generous pension package, while effectuating significant savings by extending the vesting period, requiring lifetime contributions, limiting overtime and enacting other reforms for most new State employees.

The State and local governments have little flexibility when trying to reduce their overall pension obligation. The cost of these benefits poses a growing burden on local governments, who are forced to reduce or limit other services or increase property taxes to meet these obli- gations. This bill would create a new tier of pension benefits (Tier 5) for most newly hired State and local government employees, which would

remove pension enhancements added in recent years to Tier 4 that have led to exorbitant pension costs for public employers. Many of these Tier 4 benefits were enacted at a time when the State and local governments faced a more optimistic financial outlook. These benefits are now unaf- fordable; the bleak current economic situation necessitates a dramatic increase in pension contribution rates by public employers in order to pay them. This bill would help mitigate the impact of future increases in employer contribution rates and, because the proposed reforms would apply only to new employees, it fully complies with the New York State Constitution.

The new tier would, for example, require employees to continue contrib- uting a percentage of their salaries to their pensions for their entire careers rather than only for the first 10 years; and restore the minimum years of service required to draw a pension from 5 years to 10. In addition, this bill would cap overtime compensation for purposes of calculating pension benefits to prevent "salary spiking" in an employ- ees' final years of service, which inflates both their ultimate pension award and costs to taxpayers.

In the short term, state and local governments would immediately realize savings from this bill because their required contributions to their respective pension funds for new employee hires subject to Tier V would be lower than that for current employees. Over time, as greater numbers of new Tier V employees are hired and current employees leave the work- force, taxpayer savings will grow exponentially.

Budget implications

PART A

The majority of newly hired police officers and firefighters are subject to the provisions of Article 14 of Retirement and Social Security Law. The average long term contribution rate for this retirement plan is 19.2% of payroll. The Office of the State Comptroller estimates the reduction in the average long term contribution rate stemming from the enactment of this bill will range from 0.6% to 3.0% of payroll.

PART B

Part B of this bill is expected to yield $5 million in savings to the State in 2010-11 and $20 million in 2011-12. Local governments and other public employers outside New York City estimated that it will also real- ize immediate savings equal to at least 1.5% of payroll subject to this legislation's provisions, growing over time to annual savings of 2.1% of payroll subject to the pension plan created by this legislation. Over time, school districts will realize savings equal to 3.1% of payroll subject to this legislation's provisions.

PART C

According to a fiscal note prepared by the Chief Actuary of the City of New York estimated that enactment of this Part of the bill would reduce employer contributions by $19.1 million in 2010, with such savings grow- ing to $64.1 million in 2019.

Effective date

This bill would take effect immediately, provided, however, that the applicable effective date of Parts A through C of the bill would be as specifically set forth in the last section of such Parts.