Teachers clean up on “pension reform”

| NY Torch

Buried in the so-called Tier V pension bill just passed by the state Legislature is an incredible set of special concessions to unionized school teachers in New York.  None of these changes were contained in Governor Paterson’s original “pension reform” proposal, which was a colossal missed opportunity to begin with.  The worst of the giveaways to teachers in the final bill–effectively locking in one of the fastest-growing, most difficult to control components of school district compensation costs–is not even mentioned in Paterson’s press release hailing the bill’s passage.

The teachers’ union had their way on three major items:

  • While the minimum full-benefit retirement age after 30 years service was raised from 55 to 62 for all other civilian employees, it will set be at 57 for teachers.  In 2007-08, the median retirement age for New York State Teachers Retirement System (NYSTRS) members was 58.
  • The Legislature promised to enact a three-month early retirement window for teachers who are 55 but have only 25 years of service.  Districts will greet this as a cost savings, but it also will shift a so-far uncalculated cost to an already stressed pension fund.
  • Last but not least, the Tier V bill makes permanent a temporary law, annually renewed since 1994, barring school districts from “diminishing” health benefits for retired school district employees unless “a corresponding diminution of benefits or contributions” applies to active workers.  Since changes in benefits for current employees must be collectively bargained, the provision effectively gives unions a veto on the matter.  This provision of Tier V, described the Assembly’s press release on the bill as “mak[ing] permanent retiree health protections,” goes unmentioned in the Governor’s celebratory release.

To be sure, the Assembly and Senate had long been in the habit of annually (and unanimously) rubber-stamping extensions of the retired teachers’ health coverage provision.  But as long as the provision was temporary, there was always a chance that some future occupant of the governor’s office would feel sufficiently emboldened to veto it or demand modifications as a condition for approval.  In general, any coveted benefit subject to periodic renewal also represents a significant point of potential leverage over the unions for a sufficiently reform-minded executive.

In one fell swoop, the Tier V bill will eliminate that leverage.  Further, it will embolden other public-sector unions that had been seeking the same permanent, perpetual benefits for their members.  The newly permanent provision for teachers becomes a precedent for everyone else.  Other public-sector units will now put strong election-year pressure on the governor and Legislature to give them same thing.  (Indeed, the Tier V bill also featured a four-year extension of compulsory arbitration rights for police and firefighters–another feature of current law that unions covet, for reasons explained here.)

Keeping in mind that the Tier V pension changes did not require bargaining with unions to begin with, Paterson and Legislature got very little from NYSUT in exchange for the special teacher goodies in the bill.  In fact, NYSUT’s sole concession apparently came down to this: while all other civilian employees in Tier V must contribute 3 percent of their salaries towards their pensions throughout their careers, teachers hired after Jan. 1 will pay 3.5 percent—a token one-half of a percentage point more, at a time when contributions are poised to increase by double-digit percentage rates.

According to the NYSTRS actuarial note pegged onto the Tier V bill, the hypothetical “entry rate” employer contribution for teachers under the new benefit structure will be about 26 percent below the rate for the current benefit structure.   This is equivalent to the projected savings for other Tier V non-uniformed members.  But, as in other areas, “it will be at least several years before [the change] has a noticeable impact on the employer contribution rate,” the actuarial note points out.

In the meantime, if the predicted path of employer contribution rate increases in the regular state retirement system is any guide, the rate for teachers is likely to rise from 6.17 percent to over 15 percent within the next few years.  NYSUT can always seek to claw back the benefit reductions before anyone in Tier V gets around to retiring–just as the union successfully did soon after Tier IV took effect in the early 1980s.  And again, districts are now more permanently stuck with costly early retiree health benefits–which, for example, amount to a $1 billion unfunded liability for the Buffalo city school district alone.

Unions are fond of using “fair share” analogies, but NYSUT is paying nowhere near its fair share for what it has gotten out of this bill.

The changes in police and fire pensions also included in the bill, especially the creation of a permanent employee contribution rate, will save more and represented a more significant change–but were balanced by the rote renewal of compulsory arbitration for those same unions.  Besides, when police and fire pensions are so much more expensive than those for everyone else, there’s scant rationale for pegging the contribution rate at the same 3 percent level as the one charged to non-uniformed employees, and below the 3.5 percent that will now be charged (but for how long?) to newly hired teachers.

Is the Tier V bill at least a step in the right direction?  Yes–only in the sense that if you are standing in Albany, face southwest and take one giant stride forward, you will be about three feet closer to an expense-paid vacation in Las Vegas.