New York state’s pension program will raise the retirement age and financial contributions for new workers to save the state and local governments about $48 billion over 30 years.

The change, affecting workers hired Jan. 1 or after, was approved by legislators today and is supported by Governor David Paterson. The two biggest public employee unions backed the change after Paterson agreed to drop proposals to eliminate a 3 percent pay increase this year and cut 8,700 state jobs.

“Savings will be achieved not only in state spending, but at the local level, which will help to reduce property taxes,” Paterson, 55, said in a statement. The state constitution bars reductions in pension benefits for existing workers.

New York’s pension fund, the third-largest in the U.S., covers 1 million current and retired workers, and had $126 billion in assets on Sept. 30, according to Comptroller Thomas DiNapoli, the sole trustee.

For new workers, the bill raises the age for retirement without penalty to 62 from 55, imposes a 38 percent penalty on non-uniformed workers who retire before 62 and increases the minimum years of service to draw a pension to 10 from 5, according to Paterson’s office.

Overtime payments included in calculating pension benefits will be capped at $15,000 a year for civilian workers, and 15 percent of wages for police and firefighters.

Savings Estimates

The Division of Budget estimated in December 2009 that a similar package of pension changes would save $30 million in its first year. In June, Paterson, a Democrat, said savings would be at least $48 billion over 30 years. Assembly Speaker Sheldon Silver, a Democrat from Manhattan, said today the changes would save state and local governments $48.5 billion.

For teachers outside New York City, whose pension fund covers 420,000 current and retired workers, the bill raises the minimum retirement age to 57 from 55 without penalty, and increases their pension contribution to 3.5 percent from 3 percent.

The bill changes New York City teacher pensions to save the city $19.1 million this year, rising to $64.1 million in 2019, according to a news release from the governor’s office.

The agreement with the United Federation of Teachers will save New York City $100 million over the next 20 years, Mayor Michael Bloomberg said in a statement.

“I look forward to working with our other partners in organized labor to begin creating the pension savings the city needs, while still providing deserved benefits to city workers,” Bloomberg said. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

Existing Teachers

Pension and health benefits for existing city teachers are unchanged, the mayor said. New hires will pay 4.85 percent of their pay to the pension plan for 27 years and 1.85 percent thereafter, up from current contributions of 4.85 percent for 10 years and 1.85 percent through 27 years, he said.

New teachers must have 10 years of service to collect a pension, up from five years now, and must work 15 years to collect health benefits after retirement, up from 10 years. The alterations require changes in city law.

The new category of pension benefits will do little to solve the state’s problem of growing retirement costs, said E.J. McMahon, director of the Empire Center for Public Policy, an Albany-based group that advocates less government spending. Benefits promised current workers allow retirement at 50 percent of salary after 25 years.

“The legacy costs of our pension promises to current employees will remain a massive headache for decades,” McMahon said.

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