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by Terry O'Neil and E.J. McMahon

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Early retirement for state workers: Money-saver, or costly sweetener?
May 2010

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March 2010

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May 01, 2009

Bloomberg budget requires Tier 5

Expect a renewed push in Albany for pension reform coming from New York City Mayor Michael Bloomberg, who will unveil his proposed budget later today.

According to news reports this morning (here and here), Bloomberg is counting on $400 million in labor savings in the budget.

But those savings are contingent, in part, on Albany's ability to pass legislation that would create a new compensation category giving future public employees a smaller pension than current or retired ones.
Public employee unions oppose creating a Tier 5 for future employees of the city, state and other municipalities. While the savings may be small in early years, the city has estimated the new tier would save the city $7 billion over 20 years, according to the Chief.
The Tier 5 proposal would require civilian employees of both the city and state to work at least 30 years and be 62 years old to qualify for a half-pay pension. Another provision, which does not apply to the state workforce, would require the city's uniformed employees, some of whom can now qualify for their pensions after 20 years' service and with no age requirement, to have to work 25 years and be at least 50 before they could collect.
Tier 5 employees would be required to contribute 3 percent toward their pensions for their entire career rather than the first 10 years.

For the state, Tier 5 savings would be relatively modest initially, saving the state $10 million in 2009-10 and $30 million in 2010-11, according to the Division of the Budget estimates in December. However,

It is expected that the pension contribution rate to be billed against new employee salaries will decrease by approximately 2.5 percent. This will result in immediate cost savings that will grow over time as existing employees leave the payroll and more new employees are hired.
The Legislature did not approve Tier 5 as part of the budget so current year savings likely would be lower.

Posted by Lise Bang-Jensen

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