Optimal Option

Alfred E. Smith State Office Building, Albany

| Events

Governor Cuomo’s proposed “Tier 6” pension reform would, for the first time, give all New York state and local government employees a choice of retirement plans. As an alternative to traditional defined-benefit pensions, employees could opt into an employer-sponsored defined-contribution plan.

Can the public sector provide an attractive, affordable defined-contribution retirement package that gives workers a secure and stable retirement income as well as added career flexibility? The Empire Center answers that question in our report, “Optimal Option,” focused on the popular Optional Retirement Plan offered for the past 48 years by the State University of New York (SUNY) and the City University of New York (CUNY), including accounts administered through the Teachers Insurance and Annuity Association and College Retirement Equities Fund (TIAA-CREF). The report includes an explanation of how the SUNY and CUNY plans work; a comparison of defined-benefit and defined-contribution benefits; new data on savings accumulations and annuity earnings of current TIAA-CREF plan members at New York’s public university systems; and recommended improvements and changes to the defined-contribution provision of the proposed Tier 6 legislation.


E.J. McMahon
Senior Fellow
Empire Center – Manhattan Institute
(Download the powerpoint presentation here)

Respondent Panel:
David M. Morrell
Benefits Administrator
State University of New York

Peter Baynes
Executive Director
New York State Conference of Mayors and Municipal Officers

Timothy G. Kremer
Executive Director
New York State School Boards Association

Question & Answer Sessions:


Part 1:

1) What do you think of the competitiveness of the Governor’s Tier VI proposal and how would you rate the competitveness and attractiveness of the defined-contribution plan? Time stamp – 0:00

2) Can you talk about the personal one-on-one kind of financial advice that is offered to the members of the plan? Time stamp – 4:37

3) Besides the cost, how long does it take to set up a plan? Time stamp – 8:37

4) What were the contribution rates on average between 1989 and 2003? Time stamp – 9:41

 5) The point is that for 20 years the system was underfunded.  At the 8% rate that E.J. suggests, had that been done on average all those years, what would the contribution rate be today? Time stamp – 10:43

 6) What would be the impact of moving a large sum of money out of the traditional (defined-benefit) retirement system into a defined-contribution system? Time Stamp – 13:24

 7) Do you support E.J.’s proposal to raise the contribution rate for a defined-contribution? Time stamp – 16:45

 Part 2:

 1) About the income replacement under annuity; you talk about 70 percent for example, so if you’re making $100,000 you would get $70,000 essentially, but wouldn’t the actual income replacement be higher than that because you’re not paying taxes on it? Time stamp – 0:00

2) What would be an average wage replacement rate for the private-sector? Time stamp – 3:22

3) Public-sector pensions are not taxable at all, but private-sector are totally taxable? Time stamp – 10:07

4) As it could/would relate to the tax cap and impact on local school districts. Time stamp – 11:09