Gov. Paterson and the state’s two biggest labor unions reached a deal yesterday to avoid layoffs and employee givebacks in exchange for buyouts and more modest retirement benefits.

Under the agreement, the Civil Service Employees Association and the Public Employee Federation backed the scaled-back pension program for new workers and trimming 7,000 workers from the 200,000-member state payroll.

Paterson estimates the deal would save the state $440 million over two years.

“This agreement is a huge win for New York’s taxpayers and will lead to the most significant reform of our public pension system in decades,” Paterson said in a statement.

Mayor Bloomberg hailed it as a big step toward creating a less generous pension tier that would save the financially pressed city big bucks.

“Today’s historic deal in Albany builds major momentum toward a critically important goal: reining in out-of-control pension costs,” the mayor said in a statement.

“The creation of a new pension tier, which our administration has long been urging, is the only responsible way to address the long-term fiscal health of our city and state.”

The creation of a new pension tier must be approved by the state Legislature.

But some fiscal watchdogs said that the agreement wouldn’t bring nearly the savings estimated by Paterson and that it was overly generous to state workers at a time of economic crisis.

E.J. McMahon, of the Manhattan Institute, said the “adoption of the governor’s Tier 5 will barely make a dent in the scary cost spiral now faced by New York’s state and local retirement system.”

Earlier this week, the governor unexpectedly vetoed a bill that had for nearly three decades allowed new uniformed personnel to participate in one of the state’s most generous pension plans.

The deal announced yesterday does not include cops and firefighters or other city workers

Under the Paterson deal, the state union members still get 3 percent raises this year and won’t postpone two weeks’ pay until retirement, as Paterson had once hoped.

The pact also postpones as many as 8,700 layoffs Paterson threatened in March, after the unions and the Legislature rejected any concessions during budget talks.

Instead, if the new pension tier is created, the age at which newly hired state workers could retire without penalty would rise to 62 from 55.

Workers would have to continue 3 percent pension contributions for 20 years rather than the current 10. They would be vested in the pension plan after 10 years, rather than five.

Paterson hopes to trim 4,500 jobs with a one-time, $20,000 buyout targeted to departments with the fattest staffs under a plan to be worked out by the unions and the governor.

Another 2,500 vacant positions would be permanently slashed from the budget.

City officials said the deal reached by Paterson and the unions provides momentum to Bloomberg’s own efforts to enact a fifth pension tier for future city employees.

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