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January 16, 2012

Will the next NYSERS retirement tier be based on defined contributions?

Will the next NYSERS retirement tier be based on defined contributions?
A NYPPL comment*

It is expected that there will be yet another “membership tier” grafted onto the New York State Employees’ Retirement System [ERS] and possibly the New York State Teachers’ Retirement System [TRS]. The question to be resolved is whether the next “Tier” will be a modification of the existing model – i.e., a defined benefit plan -- or whether the legislation will go in a new direction and provide that this new tier will be a Defined Contribution Plan [DCP].

The key elements of a viable DCP plan would provide that:

1. All new members would join a DCP;
2. Employer and employee contributions would be negotiated through collective bargaining;
3. Employees would “vest” immediately;
4. Current members of a public retirement system would be permitted to elect to become members of the appropriate DCP; and
5. ERS and TRS, respectively, would administer their DCP plans by essentially expand the existing “employee contribution” operations of the Systems, with, perhaps, a variable annuity option made available to interested members.

Since 1965 the State University’s Optional Retirement Plan, a retirement plan based on defined contributions rather than defined benefits, has been available to certain employees of the State University of New York, the Statutory Contract Colleges at Cornell and Alfred Universities, and the community colleges.** Further, since 1968 the City University of the City of New York has offered certain of its employees the opportunity to elect to participate in an optional DCP retirement program as well.***

The model for such legislation may well be the State University’s DCP, which is set out in Education Law §390, et seq. The State Education Department Optional Retirement Program is set out in §180 of the Education Law.

* GOVERNOR CUOMO'S 2012-13 EXECUTIVE BUDGET, presented on January 17, 2012, included the following proposal:

Enact pension reform: Next to Medicaid, pension costs are the most significant burden on local governments. The Governor called for a new tier in the State pension system that will save the State and local governments outside of New York City $83 billion and New York City $30 billion over the next 30 years. The new pension plan would have progressive contribution rates between 4% and 6% with shared risk/reward for employees and employers to account for market volatility. It includes a voluntary option for Defined Contribution following the TIAA-CREF model. Employees taking this Defined Contribution will vest in this system after one year. This option will be portable. No current employees will be affected by the Governor's pension reform plan. 

** Since 1968 the State Department of Education has offered its DCP Optional Retirement Program to eligible employees.

*** See Article 125-A of the Education Law

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NYPPL Blogger Harvey Randall served as Principal Attorney, New York State Department of Civil Service; Director of Personnel, SUNY Central Administration; Director of Research, Governor’s Office of Employee Relations; and Staff Judge Advocate General, New York Guard. Consistent with the Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations, the material posted to this blog is presented with the understanding that neither the publisher nor NYPPL and, or, its staff and contributors are providing legal advice to the reader and in the event legal or other expert assistance is needed, the reader is urged to seek such advice from a knowledgeable professional.
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