Tier VI pension savings may be years off

PHOTOGRAPHER: Kathleen Moore

The new state pension plan for as-yet-unhired employees is supposed to save local governments millions, but Capital Region leaders aren’t holding their breath.

Rotterdam Supervisor Harry Buffardi calculated that he’ll probably be dead before his town sees a significant savings.

Schenectady Mayor Gary McCarthy asked whether The Daily Gazette had a way to leave story notes for reporters who begin work 20 years from now. They’re the ones who will be able to determine what savings Tier VI will provide, he said.

But that doesn’t mean the new system is worthless, said Amsterdam Mayor Ann Thane. “You know, you have to start somewhere,” she said. “We have to make long-range decisions.”

Earlier this month, the state Legislature passed the new plan — an additional tier in the state pension system — in hopes of reducing the ever-increasing pension costs. New government employees, hired after April 1, will receive less-generous pensions when they retire, must work longer before earning those pensions and will have stricter limitations on how they can enhance the pensions through overtime.

But Tier VI doesn’t lower the costs for existing employees, leaving local governments with a dire problem.

Schenectady is paying $7.6 million to the pension system this year, up from $4.9 million just two years ago. Every municipality is struggling with similar increases.

Although there’s no relief coming soon, local leaders are hopeful that the limits on pension padding in the new tier might finally put an end to the practice of working hundreds of hours of overtime just before retirement to get a bigger pension.

That practice has hurt the pension system, because the system must pay more than budgeted when the employee retires.

If new police, firefighters and others work enough overtime to increase their salary by more than 15 percent, the extra won’t be considered when the employee’s pension is calculated.

The pension will also be based on the employee’s highest five consecutive years of salary.

In the past, a police officer in Schenectady could more than double his salary through overtime in his final year, retire, and get a much higher pension than his regular salary would have allowed.

The pension system was previously changed to base pensions on three years of the workers’ total salary, but Schenectady police responded by simply working double shifts for three years.

Would they really stop if they had to work overtime for five years?

Schenectady Public Safety Commissioner Wayne Bennett thinks they will, simply because departments won’t allow conditions for extreme overtime to persist for years on end.

Thane is already doing that now to try to cut costs for current employees. By executive order, any overtime must be approved by her first.

“It has helped,” she said.

In Rotterdam, Buffardi is analyzing the savings he might get if he offers a retirement incentive to current employees so they can be replaced with new hires in Tier VI.

“The job market is helping us out in that regard,” he said. “We have a number of people who want to come at any benefits whatsoever.”

The governor’s office has released county-by-county savings estimates that predict Schenectady County will save $7 million in pension costs over the next five years through the new system. But the Comptroller’s Office, which sets the yearly pension costs for each municipality, flatly refused to corroborate those estimates.

“This new tier will not significantly lower costs for local governments in the short run,” Comptroller Thomas P. DiNapoli said in a statement.

There is no “quick fix” to the pension system’s costs, he said.

And despite Tier VI, pension costs will rise for the next two years, DiNapoli spokesman Eric Sumberg said. That’s because the state spread out over five years the losses from the stock market drop in 2008-2009.

After that, Sumberg said, municipalities will just have to wait until their current workforce retires. Then they’ll start to see a significant savings.

With every retirement and corresponding new hire, costs will go down a little.

Right now, municipalities pay 9 percent of salary each year for every employee in the Tier V pension system. That will drop to 4 or 5 percent for employees in Tier VI, Sumberg said.

But both figures assume the Comptroller’s Office gets the returns it expects from the stock market, where the pension fund is invested. If the stock market doesn’t cooperate, costs will go up.