Public Employee Press

Politicians seek to destroy the dignified retirement of public service workers
The pension killers: Tier 6 and 401(k)

By GREGORY N. HEIRES

Gov. Andrew Cuomo's proposal to create a new pension tier with a 401(k)-like option could destroy two of the country's best state and local plans for public employees.

Mayor Michael R. Bloomberg, who has linked pension slashes to the current round of collective bargaining talks, immediately endorsed the plan, which Cuomo included with his budget proposal presented in January.

"The Cuomo plan would be the death knell for the public-sector pension systems in New York," said James Tucciarelli, who heads the DC 37 Pension Committee and is president of Sewage Treatment Workers and Sr. STWs Local 1322.

"Unfortunately, our governor has jumped on the nationwide bandwagon of politicians who have put a bull's-eye on the backs of public service workers," Tucciarelli said. "They scapegoat public employees for budget problems rooted in the economic crisis, which was caused by the country's reckless financial elite, not workers."

A 40 percent reduction

Cuomo's Tier 6, which would apply to future state and city employees, would reduce the lifetime benefits of of public service workers by an astounding 40 percent.

This plan would push many new workers to choose the 401(k)-like option, leading to a massive shift of funding out of the pension system that would endanger the retirement benefits of employees in all tiers.

Yet even with the shriveled pension payments of Tier 6, new workers couldn't be sure of accumulating enough savings in their 401(k)-style plans for a comfortable retirement, because the 401(k) money would be at risk in the stock market.

"The Cuomo plan amounts to a broken promise," DC 37 Executive Director Lillian Roberts said.

"Historically, public employees have accepted lower pay in exchange for a secure retirement," she said. "We pay for our health care and pensions with deferred wages. So, besides gutting pensions, the Cuomo plan, in essence, would mean a pay cut. It's yet another hit on the middle class and working poor."

"All this talk of pension 'reform' is a euphemism for a pension reduction," said Stuart Leibowitz, president of the DC 37 Retirees Association and co-chair of the
DC 37 Pension Committee. "They just want to make new workers work longer and pay more for a worse benefit."

Working longer for less

Under Tier 6, workers' contributions would increase from 3 percent of salary to 4, 5 or 6 percent, depending on their pay level. The retirement age would increase from 62 to 65 years, and early retirement would be prohibited.

Tier 6 would shrink pension payments by changing the formula for calculating the retirement benefit to use a smaller percentage of salary and a longer time for figuring the final average salary; overtime and unused sick time would no longer count.

The period for "vesting," or qualifying for a guaranteed pension, would rise from 10 to 12 years. Workers would have to contribute to the pension system for their entire careers instead of ending the pay deductions after 10 years of service.

When pension system earnings fall below projections, the Cuomo plan would force workers to
pay part of the employer's increased annual contributions, a form of cost-shifting generally unheard of with traditional plans.

Individuals who take the 401(k)-like option will, of course, lose the stability of traditional plans. Without a guaranteed pension income, 401(k) account holders risk being hurt by any economic downturn in their later years when they would need to cash in investments for retirement income. They could be stuck with less income for the rest of their lives or forced to continue working beyond their retirement age.

With help from its national union AFSCME, DC 37 and the rest of the state's labor movement have launched fight-back campaigns. The state AFL-CIO is running radio ads and the city Central Labor Council has issued fliers attacking Tier 6 plan and its 401(k)-like option. Some unions are using robo-calls to ask members to call their legislators and urge them to oppose the pension cuts.

DC 37 is working to inform members and retirees about the dangers of Tier 6 and its 401(k)-like companion, and the union is already lobbying legislators on the issue. Members and retirees can call 1-877-823-4343 to urge their Albany legislators to vote "No."