This week the state legislature created a Tier V retirement system for state and local employees hired after January 1st. The unions are delighted with the measure, which is the tell-tale sign that it fixes little if anything in terms of state and local fiscal problems. In fact, it's a missed opportunity and a step backwards for improving short and long-term state and local finances.
While the politicians were claiming victory for fiscal responsibility, the bill they adopted actually creates a new benefit for teachers by moving up the retirement age from 62 to 57 with full benefits, provided they have a minimum of 30 years in the system. Everyone else must wait to 62.
"We need the early retirement," Alan Lubin, NYSUT's #2, told the Associated Press. "Teachers just don't make it to 62. It's a tough job."
Huh? Do they die prematurely, Mr. Lubin? What is this man talking about? Everyone is living longer on average, and the Social Security retirement age is moving in the opposite direction, to 67.
Indeed, school teachers do have a tough job and deserve our respect and fair compensation. But claiming teachers "don't make it" passed age 57 is patronizing and demeaning toward them. In fact, superior teachers deserve more compensation than lesser ones, rather than the typical one-size fits-all union contracts that forbid acknowledging differences in student accomplishment and specialty subjects. But teachers also get considerable time off during the calendar year (summers, Christmas break, spring break, Lincoln's birthday, Columbus Day, etc.) to balance the grind of educating dozens of students on a daily basis.
New employees in Tier V now will pay 3.5 percent of their salary toward the pension throughout their employment, but the pension level remains guaranteed, which is what drives state and local fiscal crises, particularly during economic slowdowns. The current Tier IV employees pay 3.0 percent of salary for the first ten years, then pay nothing. It won't be too many years hence before NYSUT and other public unions get the legislature to sweeten Tier V just as they did for Tier IV. Bank on it.
A Richer, Affordable Way for Employees and Government
The missed opportunity here is that the legislature should have created a Tier V with a defined contribution plan, rather than continuing the defined benefit system. Defined contribution could require employer and employee to contribute a set, predictable amount for pensions. Savings would grow over time according to investment returns. Yes, in some years the pension savings could decline for some workers, depending on the risk level chosen. But, over a 30-year career a defined contribution system would save government and school districts billions of dollars for other needs, and provide for richer pensions for retirees.
In the current defined benefit system, continued by the new Tier V, the skyrocketing cost of guaranteeing the actuarial demands of retirement ironically means less funding for other educational needs, including teacher salaries.
Charter schools have the choice between the public defined benefit systems and a 401(k)-style defined contribution system. Many, if not most, charter schools opt for the latter as they must have predictable expenses since their revenue options are dependent on a formula and are limited, e.g., charters can't raise taxes to fund higher actuarial costs of the public pension systems.
In tough fiscal times as these, we have another reminder that the unions, especially the teachers, wield enormous influence in state government. It's democratic and perfectly legal. It's also anti-climatic and expensive.
for The Chalkboard
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