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1

Citizens Budget Commission

One Penn Plaza, Suite 640

New York, NY 10119

411 State Street

Albany, NY 12203

James L. Lipscomb

Chairman

Carol Kellermann

President

The Citizens Budget

Commission is a nonprofit,

nonpartisan civic organization

devoted to influencing

constructive change in the

finances and services of New York State and City

governments.

A major activity of the

Commission is conducting

research on the financial and

management practices of the

State and City.

This report was researched

and written by Maria Doulis,

Senior Research Associate.

Research Assistant Connor

Mealey provided research

assistance. Charles Brecher,

Research Director, and

Elizabeth Lynam, Deputy

Research Director, offered

additional guidance.

For more information,

visit www.cbcny.org.

October 2010

INTRODUCTION

Public employees in New York State {outside New York

City} join one of three pension systems, depending on

their occupation. One pension system is dedicated to

teachers, another is for employees of police and fire

departments, and the last is for all other public

employees.

State and local governments and employees contribute

to these systems to pay the cost of providing pensions,

and the State Constitution protects the rights of employees to the pension benefits in effect during their

employment. New York State’s pension funds are well ‐

funded; unlike in some other states, New York taxpayers

have continued to pay into public pension funds even

during times of fiscal stress to ensure that future State

and local retirees will receive their benefits.

This fiscal responsibility has come at an extremely high

cost: employer pension contributions have increased

sharply over the past decade due to the poor market

performance of investments, continual “sweetening” of relatively generous benefits, and reduced contribution

requirements for public employees. The trend is

projected to continue into the future.

In addition, costs for retiree health insurance are

escalating rapidly as well. These costs are not funded on

an actuarial basis like pensions, but are paid as incurred

from the annual operating budget. As a result, many

states have unfunded actuarial liabilities worth tens of billions of dollars; in New York, the State liability for

retiree health insurance and other benefits totals $55.9

billion.

Local governments have been similarly strained by rising

pension and retiree health care costs. New Yorkers

should understand the reasons behind these trends so

that they can participate in an informed way in the

discussions about how to reform the system. This report

presents eight facts about retirement benefits for New

York State and local employees intended to stimulate a

substantive discourse on pursuing changes to prevent

underfunding of the pension systems and to make

retirement benefits more fair and affordable.




2

Membership Percent

State 358,377 25%

Local Governments 336,601 23%

Schools & Colleges 610,234 42%

Other 133,078 9%

TOTAL 1,438,290 100%

Sources: Data for New York State & Local Employees' and

Police & Fire Retirement Systems are from the New York

State Office of the State Comptroller, New York State and Local Retirement System Comprehensive Annual Financial Report For Fiscal Year Ended March 31, 2010. Data for New York State Teachers' Retirement System are from

New York State Teachers' Retirement System,

Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2009.

Table 1: Membership in New York State

Pension Systems by Employer

Note: Data exclude 36,365 beneficiaries for whom no

detail was provided. Data for Teachers' Retirement

System for 2009; all other data as of 2010.

THERE ARE OVER 500,000 RETIREES AND BENEFICIARIES – MORE THAN THE

POPULATION OF ROCHESTER, YONKERS AND ALBANY COMBINED.

More than 1.4 million people are enrolled

in the three state pension systems. Only

25 percent are State employees, and they

belong primarily to the New York State

and Local Employees’ Retirement System.

Membership in the other pension

systems, the Teachers’ Retirement System

and the Police and Fire Retirement

System, is composed almost entirely of local government employees. Most, over

610,000 people, are or were employed by

public schools and colleges. Another 23

percent are or were employees of local

governments – counties, cities, towns,

and villages – and include most law

enforcement officers. A smaller share is

comprised of employees of other entities,

such as public authorities.

Table 2 shows that more than one ‐ third of all members of the State’s pension

systems – or 515,000 people – are

currently retired or receiving benefits. In

the police and fire system, the share of retirees and beneficiaries is much higher – 46 percent – attributable to retirement plans that have

allowed members to retire after 20 or 25 years of service, regardless of age.

Employees'

System PercentPolice & Fire

System PercentTeachers'

System Percent Total PercentRetirees &

Beneficiaries 345,106 35% 30,697 46% 139,297 33% 515,100 35%

Active Members 529,466 54% 32,449 49% 274,974 66% 836,889 57%

Inactive Members 114,409 12% 2,893 4% 5,364 1% 122,666 8%

Total

Membership 988,981 100% 66,039 100% 419,635 100% 1,474,655 100%Notes: Inactive members are no longer employed but not yet eligible to receive benefits. Total retirees include 36,365

beneficiaries and account for higher total membership than shown in Table 1. Data for Teachers' Retirement System for 2009; all

other data as of 2010.

Sources: New York State Office of the State Comptroller, New York State and Local Retirement System Comprehensive Annual Financial Report For Fiscal Year Ended March 31, 2010 , p. 37; New York State Teachers' Retirement System, Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2009, p. 89.

Table 2: Enrollment in New York State Pension Systems by Status



8 Things New Yorkers Should Know About Public Retirement Benefits in NYS

3

STATE A ND LOCAL EMPLOYERS CONTRIBUTE SEVEN TIMES AS MUCH AS EMPLOYEES TO

THE PENSION FUNDS.

For the three pension funds combined, State and local employers contributed 88 percent of total

contributions in 2009; that is, they exceeded member contributions by a ratio of more than 7:1. This

has not always been the case; total employer contributions to the pension systems have jumped

since 2000, while employee contributions have remained steady. While the market decline accounts

for some of the increase, a key reason is that legislation passed in 2000 eliminated employees’

contributions to their pensions after the first ten years of service. Furthermore, some members of the police and fire system were not required to make any contribution at all; in this system,

employers made 99 percent of the total employer ‐ employee contribution in 2010.

The pension reform package passed by the State Legislature last year mandated a 3 percent

contribution by all future State and local employees 1; however, this is still low compared to the

national average. Data from the Bureau of Labor Statistics show that the mean contribution for all

state and local workers with a fixed pension contribution requirement is 6.4 percent, with the mean

for state government employees at 5.9 percent, local government employees at 6.5 percent, and

teachers at 6.8 percent. 2

The U.S. Census Bureau also collects data on the contributions of state and local employees and

employers to their pension systems. 3 The most recent data, from 2008, confirm that New York’s

imbalance in contributions is out of line with other states. For all U.S. state systems in 2008, the ratio

of employer to employee contributions was 2:1. For New York, that ratio was 9:1, ranking seventh

among all states and third among the ten largest pension systems, as shown in Table 3.

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$ i n m i l l i o n s

Total Employer Contributions Total Employee Contributions

Notes: Includes contributions to the New York State Teachers' Retirement System (2009), New York State and Local Employees'

Retirement System (2010) and the New York State Police and Fire Retirement System (2010). As an estimate, employer and employee

contributions made in 2009 in the Teachers' Retirement System used in 2010, as well.

Sources: Comprehensive Annual Reports of the New York State Teachers' Retirement System (2000 ‐ 2009) and New York State Common

Retirement System (2000 ‐ 2010).

Figure 1: Total Employee and Employer Contributions to the New York State

Pension Funds, 2000 ‐ 2010




4

NEWLY RETIRED EMPLOYEES RECEIVED AN AVERAGE PENSION OF $33,270.

Employees retiring in 2010 received an average annual pension of $33,270. The average pension

received by police and firefighters who retired in 2010 ($61,295) is more than double that of regular

civilian employees ($25,440). The average pension for all retired employees statewide, $24,240, is

lower than for recent retirees, with higher average pensions for teachers ($35,950) and police and

firefighters ($39,808). 4

All Retirees & Beneficiaries New Retirees

Teachers' Retirement System (2009) $35,950 $45,703

State & Local Employees Retirement System $18,300 $25,441

Police & Fire Retirement System $39,808 $61,295

Total (Weighted Average) $24,240 $33,271

Table 4: Average Annual Pension Benefits, New York State Retirees, 2010

Sources: New York State Office of the State Comptroller, New York State and Local Retirement System Comprehensive Annual Financial Report For Fiscal Year Ended March 31, 2010 , p 132; New York State Teachers' Retirement System,

Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2009, p. 94 ‐ 95.

Note: Figures for Teachers' Retirement System are from 2009 and do not include payments made to beneficiaries.

Percent

EmployeePercent

Employer

Ratio ‐ Employer

to Employee

Contributions

Ten

Largest

RankNational

Rank

Florida $3,289,466 3% 97% 33:1 1 3Connecticut $3,602,374 9% 91% 10:1 2 5New York $4,282,573 10% 90% 9:1 3 7California $17,410,472 35% 65% 2:1 4 22New Jersey $4,180,258 38% 62% 2:1 5 30Illinois $4,452,486 38% 62% 2:1 6 31Massachusetts $2,544,215 44% 56% 1:1 7 37Texas $5,924,337 47% 53% 1:1 8 42Ohio $5,682,150 48% 52% 1:1 9 43Pennsylvania $2,257,718 55% 45% 1:1 10 49

US State Systems $95,509,164 33% 67% 2:1

Table 3: Ratio of Employer to Employee Contributions, Ten Largest State Pension Systems,

Fiscal Year 2008 (dollars in thousands)

Source: United States Census Bureau. 2008 Survey of State and Local Public Employee Retirement Systems. "Table 2a: Revenues of State and Local Public Employee Retirement Systems by State and Level of Government,

Fiscal Year 2008." March 23, 2010.

Total Employee

& Employer

Contributions




5

NE W YORK IS UNUSUAL AMONG PUBLIC PENSION SYSTEMS IN ITS INCLUSION OF

OVERTIME IN FINAL AVERAGE SALARY CALCULATIONS.

One reason that police and fire employees receive higher pensions than civilian employees is the

inclusion of overtime in the salary calculation that determines pension benefits. New York is among

a small minority of public employers that include overtime in the calculation of final average salary;

the available data indicate that only 6 percent of all full‐ time State and local employees across the

country are eligible to include overtime in the calculation of final average salary used to determine

pension benefits. 5

Including overtime in the calculation of pension benefits encourages a pattern of heavy overtime in

employees’ final years of employment. An investigation by the New York State Attorney General

recently revealed practices of “pension padding” in 40 of the 50 employers surveyed from across the

State. The report documented patterns of overtime that showed employees approaching retirement

began working or worked substantially more overtime in their final years of service than other

employees in similar positions. 6

The pension reforms of 2009 provided a modest cap on overtime, limiting it to 15 percent per year

of regular salary for police and fire retirees and $15,000 per year – with a 3 percent inflation factor –

for state and local employees.

IN 2009, 44 PERCENT OF SERVICE RETIREES IN THE STATE & LOCAL EMPLOYEES’ AND

POLICE & FIR E RETIREMENT SYSTEMS WERE UNDER AGE 60.

State and local employees are eligible for full retirement at age 62 and teachers can retire at age 57

(previously 55) with 30 years of service credit. For police and fire employees, the minimum age

requirement was eliminated recently; therefore, new employees can collect a full pension after 20

years of service, regardless of age. 7

State & Local Employees' Ret. System Percent

Police & Fire Retirement

System Percent

State & Local Employees' Ret. System Percent

Police & Fire Retirement

System Percent

Under 60 48,454 14% 9,592 31% Under 60 7,471 41% 929 81%

61 ‐ 65 63,919 19% 6,400 21% 60 ‐ 64 6,515 36% 223 19%

66 ‐ 70 63,242 18% 5,317 17% 65 ‐ 69 2,796 15%

71 and up 169,491 49% 9,388 31% 70 and up 1,259 7%

Total 345,106 100% 30,697 100% Total 18,041 100% 1,152 100%

Table 5: Retirees and Beneficiaries by Age, As of March 31, 2010

Source: New York State Office of the State Comptroller, New York State and Local Retirement System Comprehensive Annual Financial Report For Fiscal Year Ended March 31, 2010, p. 135, 145.

Notes: New service retirees are all employees retiring in 2010 for service, not disability. Category for new service retirees ages 60‐ 64 in the

Police & Fire retirement system includes all retirees over the age of 60 due to lack of detailed reporting.

All Retirees and Beneficiaries New Service Retirees in 2010




6

Two of the three pension systems report the distribution of retirees by age. In the State & Local

Employees’ Retirement System, 41 percent of those retiring in 2010 on a service pension were under

age 60. In the Police & Fire Retirement System, 81 percent of new police and fire service retirees

were under age 60; almost one ‐ third were under age 50. For teachers, the average age at retirement

is 58 years and 2 months for those retiring on service and 49 years and 4 months for those who have

retired on disability. 8

RETIREES ALSO RECEIVE HEALTH INSURANCE BENEFITS FROM THE STATE AT LITTLE

PERSONAL COST.

Retirees who have ten years of service are eligible to continue in their health insurance plan under

the same terms as employees; that is, they pay 10 percent of the premiums for individual coverage

and 25 percent for family coverage. Retired employees are eligible to continue to receive health

insurance even if they are not yet collecting their pensions. Retirees can use sick leave credits to

cover their premium costs; as a result, many pay no premiums for a considerable period after

retirement.

The State also reimburses retirees for most of the cost of Medicare Part B premiums. Medicare Part

B covers medical services, such as doctors’ visits and outpatient stays. The federal government

requires that retirees pay a premium for the program; currently, the base monthly premium is

$96.40, and it increases to as much as $350 per month for

those with higher incomes. Until fiscal year 2010, the State

reimbursed retirees for the full cost of this premium;

beginning in the current fiscal year, retirees will be required to

pay ten percent of this premium for individual coverage and

25 percent for dependent coverage.

Unlike pensions, retiree health obligations are paid for on a

pay ‐ as ‐ you ‐ go basis. While New York earns praise for funding

its pension system, it is among the worst states with respect

to funding retiree health and other non ‐ pension benefits. 9 The

future cost of these retirement obligations for retirees is

enormous: $46.3 billion for the State and $9.6 billion for SUNY as of March 31, 2010. The unfunded

liabilities of local governments are also large; one report estimates total State and local unfunded

actuarial liabilities are over $200 billion. 10

Governor David Paterson has proposed reforming retiree health benefits to require employee

contributions on a sliding scale that would determine cost ‐ sharing in inverse proportion to length of service. For those with a minimum of ten years of service, retirees would be responsible for 50

percent of the premium for individual coverage and 65 percent for dependent coverage. For each

additional year of service, the State’s contribution would be increased by 2 percent. The maximum

benefit (10 percent for individuals; 25 percent for families) would only be available for those with 30

years or more of service.

The future cost of New York

State retiree health insurance

obligations is $56 billion.

While New York earns praise

for funding its pension

system, it is among the worst

states with respect to funding

retiree health and other non ‐

pension benefits.




7

PENSION CONTRIBUTIONS COST THE STATE ALMOST $1.5 BILLION PER YEAR, AND

ARE PROJECTED TO EXCEED $2 BILLION IN 2014.

At the start of the last decade, New York State was paying $100 million in annual pension

contributions; by fiscal year 2009, this amount had grown to ten times that amount. Investment

losses suffered by the pension funds earlier in the decade meant that the funds did not meet their

targeted rate of return, necessitating increased contributions by the State to keep the pension

systems fully funded. In addition, the State Legislature made pensions more costly by eliminating

employee contributions after ten years, enacting a cost ‐ of ‐ living adjustment, and continually

enriching pensions with “sweeteners.”

The losses suffered during the fiscal downturn of 2008 are just beginning to impact the State’s

pension fund contributions, which are projected to reach $2.1 billion by fiscal year 2014. This

increase would have been even higher if the State had not enacted an amortization plan that will cap

the required employer contribution for the next four years (see Figure 2). While the contribution

rate for State and local employers was projected to climb to 23.5 percent of payroll for the State and

Local Employees’ Retirement System and 31.4 percent for the Police and Fire Retirement System by

2014, the amortization law caps these rates at 12.5 percent and 20.5 percent, respectively. While

this will save money in the short ‐ term, it is a borrowing scheme that increases future costs, and does

little to stem the tide of rising pension costs.




8

AS AN ALTERNATIVE TO TRADITIONAL DEFINED BENEFIT PLANS, THE STATE OFFERS

DEFINED CONTRIBUTION PLANS TO SOME PUBLIC EMPLOYEES.

In the private sector, large corporations and smaller firms alike have moved away offering from

defined benefit plans that place the investment risk entirely on the employer. From 1986 to 2008,

the percent of full‐ time workers in private industry enrolled in defined benefit plans dropped from

76 percent to 24 percent. 11 In the public sector, a similar transition is slowly starting to take place.

States such as Michigan and Alaska have moved employees to defined contributions plans for

several years, and other states, such as Georgia and Nebraska, are experimenting with hybrid plans

that, for example, may guarantee a rate of return but not an annual payout.

While there has been resistance to such changes in New York, a defined contribution plan is already

offered to many employees. Faculty and professional staff employees of the State University of New

York (SUNY) have the option to choose between a defined benefit plan – under the terms governing

membership in the New York State Employees’ Retirement System or Teachers’ Retirement System –or a defined contribution plan. Under the SUNY Optional Retirement Program (ORP), the employer

and employee make contributions to a private account that is invested at the employee’s discretion.

There is no minimum retirement age, and vesting occurs after a year (or earlier for those who

already have a private retirement account). These are particularly attractive advantages for more

mobile employees.




9

EN D N O T E S

1 Some local employees, such as teachers, make additional contributions.

2 U.S. Bureau of Labor Statistics. “Defined benefit retirement plans: employee contribution requirement and method of

contribution.” National Compensation Survey/ Employee Benefit Survey – March 2009. Available online at

http://www.bls.gov/ncs/ebs/benefits/2009/ownership/govt/table03a.htm. Accessed August 27, 2010.

3 U.S. Census Bureau. “Table 2a: Revenues of State and Local Public Employee Retirement Systems, by State and Level of Government, Fiscal Year 2008.” Defined benefit retirement plans: employee contribution requirement and method of contribution.” Survey of State and Local Public Employee Retirement Systems. March 23, 2010. Available online at

http://www.census.gov/govs/retire/index.html. Accessed July 15, 2010.

4 Figures do not include retirees of New York City. Average pension benefits for the Teachers’ Retirement System reflect

2009 averages, not 2010. For average pension benefits for New York City retirees, please see the Citizens Budget

Commission’s April 2009 report , The Explosion in Pension Costs: 10 Things New Yorkers Should Know About Retirement Benefits for New York City Employees , available online at http://www.cbcny.org/Pension_Facts.pdf.

5 U.S. Bureau of Labor Statistics. Employee Benefits in State and Local Government, 1998. Bulletin 2531. December 2000.

Accessed September 15, 2010 at http://www.bls.gov/ncs/ebs/sp/ebbl0018.pdf.

6 New York State Office of the Attorney General. Pension Padding: We All Pay the Price. July 7, 2010. Available online at

http://www.nypensionpadding.com/pdfs/preliminary_data_analysis_summary.pdf.

7

For

additional

information

on

state

employee

retirement

plans

and

new

Tier

5

benefit

information,

visit

the

websites

of

the New York State Teachers’ Retirement System (http://www.nystrs.org/main/benefits/service.htm) and the New York

State Office of the State Comptroller (http://www.osc.state.ny.us/retire/employers/tier ‐ 5/comparison.php).

8 New York State Teachers' Retirement System. Comprehensive Annual Financial Report for the Fiscal Year Ended June 30,

2009 , p. 95.

9 Pew Center on the States. “The trillion dollar gap: Underfunded state retirement systems and the roads to reform.”

February 2010. Accessed on September 1, 2010, also available online at

http://downloads.pewcenteronthestates.org/The_Trillion_Dollar_Gap_final.pdf

10 Includes New York City. See E.J. McMahon, “Iceberg Ahead: The Hidden Cost of Public Sector Retiree Health Benefits in

New York.” Empire Center for New York State Policy. October 2010.

11 William J. Wiatrowski. “The Structure of State and Local Government Retirement Benefits.” U.S. Bureau of Labor

Statistics. Updated February 25, 2009, Accessed October 4, 2010, available online at:

http://www.bls.gov/opub/cwc/cm20090218ar01p1.htm.

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