Monthly Column: Reforming pension system protects taxpayers


By Michael H. Ranzenhofer

Back in March, during the middle of the budget process, the State Senate – working together with the Governor and State Assembly – passed a major pension reform bill.  As a result of the creation of a new Tier VI pension plan, State and local governments can expect to save $80 billion over thirty years.  While I would have liked to see the reform measures go a step further, $80 billion in savings to the taxpayer is better than none.
Taxpayers paid over $8 for each $1 contributed by public employees to the State pension system in 2009.  The average public pension benefit for retirees was $26,701 in 2009;  On the other hand, in the private sector, the average pension benefit for retirees was $13,701.  The newly adopted tier aims to bring pension benefits for public workers more in line with those in the private sector.

The rising costs of pensions are driving up expenses for local governments and contributing to the burden of property taxes.  Local governments have had to deal with a 650% increase in pension contributions over the past ten years.  Simply put, the increasing costs of the current system were unsustainable. Therefore, changes had to be made to get these costs under control. 

Overall, the new tier increases the contribution rates from employees. Currently, employees are required to contribute 3% of their salary to the pension system.  Under Tier VI, for employees making $45,000 or less, the current contribution rate remains unchanged.  For salaries above $45,000, employees will be required to contribute a higher percentage of between 3.5% to 6%, depending on their salary.

Other highlights of the plan were included to prevent pension padding, closing loopholes so that pension benefits reflect the actual salary of an employee throughout their entire length of public service.  In order to do so, the new tier changes the final average salary calculation from 3 to 5 years, reduces the number of sick days allowed for retirement service credit in half, and caps overtime salary at 15% of base pay.

The savings as a result of this legislation for Erie County will amount to $41 million over the next five years and $2.6 billion over the next thirty years.

Just as important though, Tier VI will maintain a fair and secure retirement for hardworking public employees.  It is important to point out that the new Tier 6 pension reform does not impact anyone in the pension system right now – only future employees.  In fact, the State Constitution bars the Legislature from scaling back pension benefits for workers already in the system.

Ultimately, reforming the public pension system will help the State further tackle its budget problems and relieve local governments of unfunded mandates.  This is a good deal for property taxpayers, and it still ensures a fair, equitable and secure retirement for future public employees.

Senator Ranzenhofer's monthly column appeared in the Amherst, Clarence and Ken-Ton Bees on May 16, 2012.