State lawmakers look to improve pensions to attract public sector workers

A historic housing crisis, billions of dollars in migrant spending and another court-mandated redistricting process have taken up the bulk of the discussions in the state’s legislative session, but concerns over the long-term health of its public sector workforce are rising ahead of the April 1 budget deadline. 

At the end of last year, there were about 11,000 vacancies in a state workforce of 175,333 people. The Hochul administration aims to fill those slots in the coming months, but with a quarter of public sector employees reaching retirement age within the next five years, a surge of retirements could hamstring state agencies, health care roles, law enforcement offices and public schools for a generation.

That has led labor leaders and some lawmakers to insist this is the year to “Fix Tier 6,” the newest and now largest pension tier among the state’s workforce. Tier 6 mandates employees must work until age 63 for up to 40 years in order to retire without having their benefits penalized.

Few have been happy with those parameters.

“What I’ve been hearing from the membership which caused me to summarize in a nutshell is that Tier 6 sucks,” said state Sen. Robert Jackson, chair of the Civil Service and Pensions Committee. “Because it sucks, we’re trying to move people away from that. We want to make it so that when people retire they can live off a pension and Social Security and other resources.”

The origins of the current Employees’ Retirement System structure stretch back to 2011, when newly elected Gov. Andrew Cuomo proposed a sweeping overhaul of the state’s pension tiers in a high-profile battle with the state’s public employee unions.

The Great Recession had strained government finances as New York City’s pension costs leaped from $1.1 billion to $8.4 billion per year and rose from $368 million to $6.6 billion for state and other local governments over the previous decade. Cuomo argued that raising the retirement age for state workers and teachers and slashing benefits spending would save $93 billion over the next three decades, to the vocal opposition of union leaders and many legislators.

But Cuomo succeeded in latching pension reform into the state budget the following year. The law created a sixth tier for new state workers, raised the retirement age from 62 to 63 years old, and required new employees to contribute between 3% and 6% of their salaries into their pensions, depending how much they earned.

A dozen years later, the financial calamity that had been predicted has not come to pass. State Comptroller Tom DiNapoli declared pensions “safe and secure” a year into the COVID-19 pandemic. Tier 6’s membership, which includes anyone who entered state service after April 2012, has swelled to about 350,000 workers, or just over half of the state retirement system.

Meanwhile, public sector offices have struggled with a labor shortage. Low starting salaries, a lack of promotional opportunities, the state’s lag payroll system and high overtime have led to burnout and attrition. In 2022, state employees compiled 22 million hours of overtime at a cost of $1.36 billion, a 47% increase from the previous year, according to the state comptroller’s office.

But another key factor is that pension benefits were no longer seen as competitive with the private sector due to their high contribution levels and lengthy requirements of service. 

“The challenge is that the state is not a competitive employer in the current market environment and it has difficulty attracting and retaining talent,” New York State Public Employees Federation President Wayne Spence said in his testimony to a state Senate Committee in October 2023. “(Tier 6) is probably the subject that members bring up most often when discussing their concerns with state service.”

Henry Garrido, whose municipal employees union District Council 37 represents health care workers in public hospitals, has seen young employees leave because they found out they would have to wait longer for a pension, contribute for a longer period of time and earn take home pay that is lower than in the private sector.

“Tier 6 was supposed to slow down state contributions into pensions, but what’s happening is a lot of people are freezing their pension and then going to work in the private sector,” he said. “It’s hurting major recruitment efforts. It’s penny-wise and pound-foolish.”

Under the Hochul administration, a coalition of public sector unions were able to take some steps to alter the state’s pension system to help the newest employees. In 2022, legislators and the governor agreed to allow state workers hired under Tier 5 and Tier 6 to be vested into their pensions after working in their jobs for five years instead of waiting a decade, adding a benefit for tens of thousands of workers. The law also waived overtime costs for Tier 6 workers for two years.

This year, union leaders are pushing for even more substantial changes. Their top priorities are lowering the Tier 6 retirement age from 63 to 55 and requiring workers to commit 30 years of service instead of 40 years to access their retirement benefits without penalty. They also propose capping the rate of a Tier 6 employee’s annual contribution into their pension at 3% to 3.5% of their salary and raising their final average salaries by using the same calculations as Tier 4 members.

Some lawmakers and union leaders want a package of Tier 6 changes to be included in the state budget as Cuomo’s law was. But Jackson, who is spearheading pension reform in the state Senate, acknowledged more work may be needed. He hopes to make the case to state Comptroller Tom DiNapoli that the state can afford to tweak Tier 6. (DiNapoli has not weighed in on any Tier 6 proposals as of the end of February.)

“I would love it to be done outside of the state budget,” Jackson said. “It has no impact on the state budget but would have an impact down the road when people are retiring and when we are recruiting more people. The pension fund will be fully funded in my opinion. It is fully funded, will it continue to be fully funded as is.”

Not everyone is on board. The New York Post ran an op-ed by E.J. McMahon of the Manhattan Institute in 2022 against significant reforms to Tier 6, arguing that its existing retirement benefits are “far more generous than the private sector norm.” And McMahon also wrote for the Empire Center last year that the state’s pension costs would have been at least $755 million higher per year without reforms to Tier 5 and Tier 6 that occurred more than a decade ago.

But United Federation of Teachers President Michael Mulgrew said the consequences of doing nothing risks having families with public sector workers leave for better jobs in neighboring states.

“If we don’t get it back to 55, we’re not going to be able to keep a workforce, and we’ll be constantly struggling to keep full recruitment,” he said. “A lot of municipalities don’t want it, but the pension funds are in very good shape. We’re not going to do anything that will harm them, but we have to get this fixed.”