The Tier 6 pension loophole for cops, firefighters

by E.J. McMahon |  | NY Torch

The Tier 6 pension “reform” enacted by New York last year applies to all state and local employees who join the state Employee Retirement System or the Police and Fire Retirement System after April 1, 2012. However, the law included a big loophole for police and firefighters, in particular—as is only now becoming publicly apparent, thanks to a detail of the proposed contract extension for Nassau County cops.

The loophole in question is Section 80 of the Tier 6 law (Chapter 18 of the Laws of 2012), which reads as follows:

Notwithstanding any provision of law to the contrary, nothing in this act shall limit the rights accruing to employees pursuant to a collective bargaining agreement for the unexpired term of such agreement or the eligibility of any member of an employee organization to join a special retirement plan open to him or her pursuant to a collectively negotiated agreement with any state or local government employer, where such agreement is in effect on the effective date of this act [April 1, 2012] and so long as such agreement remains in effect thereafter …

A similar provision with the same intent was included in the Tier 5 pension law, which was the product of a December 2009 agreement between then-Governor David Paterson and the Legislature.

On the face of it, both provisions conflict with Section 201.4 of Article 14 of the state Civil Service Law (better known as the Taylor Law), which says that negotiable terms and conditions of employment “shall not include any benefits provided by or to be provided by a public retirement system, or payments to a fund or insurer to provide an income for retirees, or payment to retirees or their beneficiaries.”  The Taylor Law provision concludes: “No such retirement benefits shall be negotiated pursuant to this article, and any benefits so negotiated shall be void.” [emphasis added]

It would hard to find language more explicit than that. Pension benefits cannot be enforceablymandated as part of a union contract negotiation.  Is that clear?

Yet, for decades since the enactment of that section, the state and many of its local governments have continued to negotiate police and fire contracts that specifically identify non-contributory pensions among the benefits available to union members, almost entirely in the case of police and firefighters. The Tier 5 and 6 loopholes presumably arose out of fear that the conflict between Taylor Law and contract provisions might give rise to litigation by unions, despite the clear meaning of Section 201.4.

Earlier this year, in cases involving firefighter unions in Yonkers and Oswego, Court of Appealsruled that once contracts expire, non-contributory pension “rights” expire with them, notwithstanding the Tier 5 provision and the Taylor Law’s Triborough Amendment. But the current contract between Nassau County and its Police Benevolent Association extends through 2015; with the county reportedly planning to hire up to 500 new officers before then, the net present value of the added expense of giving them non-contributory pensions during their working lives could easily run into tens of millions of dollars.

Of course, the way for the county to avoid this cost would be to minimize hiring before the contract expires.  Another would be to simply deny non-contributory benefits to new hires the both the contract and the Tier 6 law conflict with Section 201.4 of the Taylor Law–although that would be a legal long-shot with up front costs.

The county has chosen a third way: as part of the trade-off for salary hikes for current cops, the PBA agreed to include this clause in their proposed agreement:

The PBA acknowledges that bargaining unit members hired after the full effective date of this Agreement shall be enrolled in Tier VI Contributory Plan of the New York State Police and Fire Retirement System.

By itself, this certainly doesn’t make the Nassau deal a good one in financial terms; that would only be true if the net present value of the concessions fully offsets the added cost of unfreezing salaries both the short and long terms, which the county has not demonstrated.

Nassau aside, the same Tier 6 pension loophole will affect the state itself as well as any local government that had a non-contributory pension provision in a contract that was in effect in April 2012 and is still in effect now.

PS – Speaking of Nassau County, Governor Cuomo has suddenly appointed a new chairman to the Nassau Interim Finance Authority (NIFA). Under holdover Chairman Ronald Stack, whose term expired at the end of last year, NIFA has reacted very skeptically to the PBA deal. Both the timing and the governor’s choice of new chairman –North Hempstead town Supervisor Jon Kaiman, a lawyer and politician who with no professional background in accounting or finance — seem questionable, to say the least.

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- E.J. McMahon is the Research Director at the Empire Center for Public Policy.