Tier 5 Bill Preserves 20-Year Pension For Cops and Firefighters

Chief Leader - December 08, 2009


Despite OT Curb, Benefits In Comparison to Tier 3 Might Sway PBA, UFA

The Tier 5 pension bill approved by the State Legislature Dec. 2 that is expected to be signed shortly by Governor Paterson reduces overtime benefits for future cops and firefighters outside the city but in most key respects preserves long-held rights, most notably the one to retire at full pension after 20 years' service, regardless of age.

While Mayor Bloomberg hailed the portion of the bill affecting city Teachers- which reflects an agreement he reached six months ago with the United Federation of Teachers-the police/ fire segment compromises his hopes of getting major pension relief from that part of the workforce.

Incentive for Unions to Act?

If anything, noted several officials including the president of the Detectives' Endowment Association, the Patrolmen's Benevolent Association and the Uniformed Firefighters Association may have more of an incentive to negotiate a similar Tier 5 deal than the Mayor does.

"The question is whether or not there is a sense of urgency on the part of the [city] unions to act, especially the entry groups like the PBA and UFA," DEA head Michael J. Palladino said in a phone interview the day after the Tier 5 bill was approved by both houses of the Legislature.

The drawbacks, from the standpoint of those unions, would be the three-percent contribution cops and firefighters from outside the city for the first time will now have to make to their pensions, and the limit on overtime earnings that can be used in computing pension allowances, which will be 15 percent of base salary over their final three years of service.

Differences Between Jurisdictions

In both cases, there are significant differences in pension rights between those employed in the five boroughs and those in other jurisdictions throughout the state who are covered by the bill. (While it had not been signed by Governor Paterson by press-time Dec. 7, that is considered a mere formality since it is a bill put forward at his request.)

City cops and firefighters have 7.85 percent of salary taken out for pension contributions, although five percent of that amount is actually funded by the city under what is known as the Increased Take-Home Pay provision. While that has historically left them at a disadvantage with their counterparts in other jurisdictions, they benefit from a more-generous provision in effect since 2000 that sets their retirement allowances based on earnings in their final year of work, while those in other parts of the state have theirs set on an average of their final three years' earnings.

Cap on Pensionable Overtime

The Tier 5 bill places a cap on the overtime that can be factored into pension allowances, setting it at 15 percent of base pay for cops and firefighters outside the city and at $15,000 for other workers. If applied to the NYPD, this would appear to have a relatively small impact on average, since police overtime is running at 16 percent; for city firefighters the hit would be somewhat greater, judging by the 20-percent overtime rate.

Until now, the PBA and UFA have been unresponsive to Mayor Bloomberg's calls to negotiate a Tier 5 deal affecting their future members. But the key components of the Governor's bill, combined with his veto six months ago of a measure that would have extended the traditional Tier 2 pension rights to future cops and firefighters and instead relegated them to the less-generous Tier 3, might prompt UFA President Steve Cassidy and PBA leader Patrick J. Lynch to reconsider, Mr. Palladino said.

Tier 3 is problematic, he explained, because it requires cops and firefighters to work 22 years to qualify for a full pension, and they must stay for 25 if they want to be eligible for costof living adjustments that all those under Tier 2 automatically receive.

"I don't want to see a day," the DEA president said, "where I have Detectives working in the same squad, doing the same work and taking the same risks but one is a 20-year Detective and one is a 22" in terms of pension rights.

He pointed out that this would put future NYPD officers at a further disadvantage with their counterparts in Nassau and Suffolk counties, whose maximum salaries are more than $20,000 above their city counterparts and generally work under less-stressful conditions.

"The suburban job, which was already attractive, remains attractive" because the 20-year retirement right is undisturbed, Mr. Palladino contended, "while the city job, which is lesser-paying, becomes less attractive" if cops need to work up to five years more to qualify for full pension rights.

Tier 3 Improves At 25 Years

Actually, the 25-year benefit under Tier 3 is more generous than under Tier 2 because of a different formula for calculating the cost-of-living adjustments. Mr. Lynch made this point in June in response to the Governor's veto of the Tier 2 extender, arguing the city would lose money in the long run. Last week, he declined through a spokesman to comment on the Tier 5 bill and whether its terms would encourage him to negotiate something roughly equivalent as preferable to Tier 3.

Attempts to get a response from Mr. Cassidy, who was away at the annual convention of the Public Employee Conference-the unions' lobbying arm in Albany-were unsuccessful.

The UFA leader, according to two other veteran union officials, may have a greater incentive to seek a pension change from the current Tier 3 because his members are more prone than cops to job-related disabling illnesses. Under Tier 2 they were entitled to the presumption that a variety of such disabilities were the result of their work, entitling them to tax-free disability pensions. Tier 3 does not include such presumptions, but the Tier 5 bill does.

A Smaller Hit Under Tier 5?

Mr. Palladino argued that the Tier 5 bill as it applies to cops and firefighters, which he said was considerably less-onerous than Mr. Paterson's original proposal, took a far smaller bite out of pension rights for future employees than the shift from Tier 2 to Tier 3. Noting that most of the pension rights provided under Tier 2 resulted from a series of negotiations in which both sides got something, Mr. Palladino said, "With the stroke of a pen when he vetoed the Tier 2 extender, the Governor wiped away benefits we got, but the city retained the value it got from those negotiations."

One portion of the bill that applies to city-based uniformed personnel concerns those Court Officers and Court Clerks who have peace officer status. For the past two decades, they have had the right to a full pension at age 55 after 30 years' service. They preserved that right, even as the Tier 5 bill requires most state workers to remain on the job until they are 62 to qualify for unreduced pensions (those who go earlier endure a penalty of up to 38 percent).

Quirk: Worth the Extra Point

To do so, Court Officers Association Dennis Quirk said, new members will have to contribute 4 percent of their salary toward their pensions, a point higher than those already on the job.

It's certainly worth it to get out seven years early," he maintained.

The court unions had more leverage than the two largest state-employee unions, the Civil Service Employees Association and the Public Employees Federation, which agreed to the age- 62 retirement provision in return for a guarantee that thousands of potential layoffs would not be made.

Future members of the UFT were also guaranteed the continued right to retire at 55-in their case, after 27 years' service-under the deal the union reached with the Bloomberg administration in late spring. In return, they are required to contribute 4.85 percent of salary toward their pensions for the first 27 years of service and 1.85 percent after that, while incumbent Teachers went from 4.85 of salary for their first 10 years to 1.85 during their next 17, with no contributions beyond that point.

That deal also limits to 7 percent the annual return on future Teachers' Tax-Deferred Annuity accounts; those already employed are assured of an 8.25 percent return. Mr. Bloomberg noted in a statement that this change "will help the city weather a downturn in the financial markets."

Need 10 Years' Service to Vest

All those covered under the Tier 5 bill approved last week will now have to work 10 years before their pensions are guaranteed, or "vested," compared to the old standard of five years. They will have to spend 15 years in the system to qualify for health benefits in retirement, up from the previous 10- year requirement.

Mr. Bloomberg noted that both changes "reward educators who choose to make teaching a career." A key provision of the final bill won by Teacher unions bars school districts from reducing retiree health benefits unless such a change is negotiated with them.

Many of the changes that negatively affect future employees actually amount to a return to the Tier 4 provisions of a decade ago, before robust pension earnings fueled by the stockmarket boom produced a deal allowing state and local governments to reduce their contributions to the retirement systems in return for benefit improvements for public employees.