Gov. Hochul and state lawmakers are on the glidepath to “fix” the state’s Tier 6 pension system, a “fix,” as the public employee unions call it, which is a really awful mistake and means returning to an earlier and more generous retirement system that will add billions of dollars in future pension costs for the state and localities, including New York City.
All public employees hired after April 1, 2012 have a retirement age of 63, as opposed to 62 in Tier 5 and earlier programs. They may also have to contribute more than the standard 3% towards their pension depending on their salary level, with those making above $100,000 needing to chip in 6%.
We will always deeply value the public employees that make New York tick, from teachers to sanitation workers to cops and firefighters, and they absolutely should be fairly compensated for what are often decades of work. The Tier 6 pension is itself already a far more generous deal than almost anyone in the private sector gets nowadays, where such defined benefit programs have all but vanished and replaced with 401(k)s which are dependent on the performance of the stock market.
Age 63 is an eminently reasonable retirement age and we don’t think it’s too much to ask for workers to contribute a nominal percentage of their income to their eventual pension. Lowering the retirement age and reducing the employee contribution means the taxpayers pay more.
Lawmakers are taking the position that tax revenues are up and that the state economy is doing much better than when the Tier 6 reform plan was instituted in 2012, as the nation was still recovering from the 2008 financial meltdown. That may be true, but this is not some one-time spend while times are flush; changes to the pension system will lock in higher costs for decades to come, and the truth is that we can’t have much confidence that the good times will roll indefinitely.
The bulk of stock market growth in the last year has been predicated on aggressive projections of the future value of AI technologies and the companies that make them, which has raised fears of a bubble that could pop at any moment and drag the economy down with it. That is a very risky and bad bet for Albany to take.
Hochul and the Legislature will get the credit from the unions for undoing the Tier 6 reforms, but future taxpayers will get the bill. What they should be doing instead is to take action to protect the state budget and the budgets of every county and city and town and village and 20 million New Yorkers by setting more money aside and being extra skeptical of large and long-term financial commitments like a significant sweetening of pension obligations.
Of course the big public sector unions are pushing for a Tier 6 repeal; it is, after all, their job to try to get the most benefits on the books for their members. It is not the responsibility of the unions to figure out how the state and NYC — which is already facing a significant budget shortfall that Hochul is purportedly worried about — is going to pay for expanded benefits in the long run.
It is, however, the job of the governor and lawmakers to drown out the lobbying for a moment and think critically about what exactly is being agreed to and how it will impact the state for generations going forward. Neither public sector employees nor anyone else will really benefit when New York ends up billions of dollars in the hole partly as a result of overly rosy long-term projections and unsustainable promises.