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Thursday, January 29, 2015
New York City And State Expect To Save Billions On New Teacher Pensions.
Despite the conservative think tanks like the Manhattan Institute and Bellwether Education Partners who claim that public employee pensions will bankrupt the City and State, when the next recession rolls around, the truth is the Tier VI pension plan will eventually save billions of dollars. The Tier VI pension plan affects all public sector employees, starting April1, 2012. No, its not an April fools joke, This plan is significantly inferior to the previous Tiers IV and V. However, since few people are under Tier V, since it started on January 1, 2010 and ended March 31 2012, I decided only to compare the Tier IV pensions with the Tier VI pensions.
The table below shows different scenarios for New York City teachers and the pensions they would receive under both Tier IV and Tier VI.
Pension Scenarios For Tier IV And Tier VI Teachers In New York City
It's obvious that the City and State will realize significant pension savings in the next decade and beyond. If you take in account that the Final Average Salary (FAS) is the five highest consecutive years under Tier VI, rather than the three highest FAS in Tier IV and the age reduction factors are larger, the Tier VI pensions will be smaller In addition, Tier VI teachers must contribute a minimum of 3.5% and that rises to 6% throughout their teaching career while the Tier IV teacher only contributes 3% for the first ten years. Moreover, since it now takes ten years to be vested, over 40% of New York State teachers will leave the profession before being eligible for even a minimal pension. Finally, if Governor Cuomo gets his way, few Tier VI teachers will last long enough tp reach full retirement age. If the Tier VI teacher will average $10,000 less in an annual pension and since there are 200,000 teachers in New York State, the average yearly savings will be 2 billion dollars annually.
For a comparison of Tier IV, V, and VI pension plans, look at my post Here.