FOR IMMEDIATE RELEASE JUNE 10, 2011

Contact: Danny Friedman (646) 397-9643 dfriedman@afscme.org

THE FACTS ON TIER 6

NEW YORK CITY Governor Cuomo has introduced a bill to create a new public pension tier. The
justification for the pension change is based on distortions and one-sided information. Here is some information to provide context on this issue. Pension costs to communities have risen because of the unprecedented drop in stock and real estate values in the 2008 and 2009 period. The shortfall is not a result of rich benefits or the failure of public employees to make their required contributions. Public employees paid on time, every time. Historically, 85 percent of public employee pension benefits are paid by public employee payments and investment gains. Pension costs measured from 2001 are misleading because the stock market was at a historic height. While markets soared, many cities, counties and towns were not required to make contributions because investment gains were so much higher than expected. However, employees continued to contribute during this up-market period. An attached chart shows the historic contributions to the retirement system from employers, showing historically low contributions from 1989 until recent market declines. Because of market fluctuations, the costs to localities have fluctuated. This fluctuation is based on market performance not enhanced benefits or pension payouts. Because employers significantly benefited by making low contributions when the market outperformed expectations, they must now pay more as a result of the recent market decline. This is the nature of pension funding. Over time, including the recent market retrenchment, pension asset returns have far exceeded expectations, which means that pensions are a good deal for employers and taxpayers because they have made lower-than-expected pension payments during this prolonged period. New York City Comptroller Liu recently released a report that showed that pension costs for New York City would actually decrease after 2016 because of existing reforms and the recovery of asset values. Comptroller Lius report shows unequivocally that pensions in New York are sustainable and resilient. Comptroller Liu released a report about New York Citys pension program at the beginning of the month. The Tier 6 plan is designed to include New York City. Lius report explains that existing reforms would save the city money in the long run, and that current costs are due to poor market performance. NYCERS civilian employee pension costs are below 6 percent of payroll for new employees who enter the workforce at the age of 30, according to Comptroller Lius recent actuarial study. Of this amount,

employees pay a little more than half, or 3 percent, for their first 10 years of service effectively reducing the citys contributions for new workers to less than 3 percent of pay for the next 10 years. Any savings from the proposed Tier 6 would be negligible. According to Comptroller Liu, city pension costs will drop precipitously in 2016. When Tier 5 passed under Governor Patterson, the law included provisions to restrict pension spiking by limiting the amount of overtime and pay raises that can be considered in pension calculations. There is no evidence of rampant spiking, especially since the passage of Tier 5. The current law defines retirement benefits based on the highest average of wages earned during any three consecutive years. Earnings in any year included in the period cannot exceed the average of the previous two years by more than 20 percent. Any amount in excess of this will be excluded. Payment for unused vacation is not included in the Final Average Salary (FAS). In addition, overtime pay that exceeds 15 percent of a members regular annual wages cannot be used in the FAS calculation. Current average NYERS public pension benefits are $18,300 yearly. Rank-and-file civilian employees average a yearly benefit of $17,166 from NYCERS. The average AFSCME members pension in New York State averages between $16,000 and $17,000 per year after a career of public service. Current law governing private sector pensions sets a maximum of five years for vesting. New Yorks pensions currently require 10 years for new workers; Cuomo now proposes 12 years. Cuomos proposal would take the onerous 10 year vesting period for public pensions and extend it to 12 years. ERISA, governing pensions in the private sector, limits vesting periods to five years.

###