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

Tier.........FAS.........Years.........Pension.........Age.....Reduction

IV,,,,,,,,,$65,000........5.............$5,428...........62
VI,,,,,,,,,$65,000........5.............$0..................63.......$5,428


IV,,,,,,,,,$75,000........9..........$11,273............62
VI,,,,,,,,,$75,000........9............$0...................63......$11,273

IV,,,,,,,,,$80,000.......10..........$13,360...........62
VI,,,,,,,,,$80,000.......10..........$12,425...........62........$935

 IV,,,,,,,,$100,000......10.........$13,360...........62
VI,,,,,,,,,$100,000......10.........$13,360...........63.........$0


IV,,,,,,,,,$80,000........10.........$11,757...........60
VI,,,,,,,,,$80,000........10.........$10,822...........60........$935


IV,,,,,,,,,$88,000.......15...........$17,415.........57
VI,,,,,,,,,$88,000.......15...........$13,447.........57.......$3,932


IV,,,,,,,$100,,000.....20............$29,200.........55
VI,,,,,,,$100,000......20............$16,032.........55......$13,167


IV,,,,,,,,$100,000.....20...........$40,000..........62
VI,,,,,,,,$100,000.....20...........$35,000..........63.......$5,000

 IV,,,,,,,$100,000......22...........$42,350.........62
VI,,,,,,,,$100,000.....22............$32,725.........63.......$3,625

IV,,,,,,,,$125,000.....25............$50,000.........62
VI,,,,,,,,$125,000.....25............$43,750.........63.......$6,250
 
IV,,,,,,,,$100,000....30.............$60,000.........62
VI,,,,,,,,$100,000....30.............$52,500.........63.......$7,500

 IV,,,,,,,$100,000....30............$60,000..........55
VI,,,,,,,,$100,000....30............$25,200..........55.......$34,800

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.

 

26 comments:

Anonymous said...

Harry Lirtzman also wrote a piece regarding the so-called "pension crisis".

http://dianeravitch.net/2015/01/09/fiscal-expert-there-is-no-pension-crisis-in-new-york/

Anonymous said...

Chazz, when do the medical benefits of retirees kick in? In other words, how long do you have to teach before you can "retire" and have full medical benefits? We had a UFT pension consultant who did a presentation at our school a few weeks ago. She said that they changed the vesting time due to people who took jobs for the city for 5 years just to get vested for medical benefits. Does this mean that somebody can teach in NYC for 10 years and "retire" with full medical benefits for life?

Anonymous said...

I just gotta make it to 55. Let me make it. I can do it. 10 more years. I can make it before shit really gets out of control. We're just about out if control, but it can be a lot worse.

Anonymous said...

My school is currently flowing with 20 year old student teachers. They come in with their grown-up business attire and are all smiles and excited to "make a difference". 20 year olds. Cute.

But do they realize they will have to teach for (a minimum of) FORTY YEARS?
Do they have any idea that they cannot retire (without penalty) before their 63rd birthday?? 63!!! Who on earth will last that long in the classroom?

My advice to all these youngins - get a certificate in school social work, school counselor/psychologist, or speech teacher. Much MUCH lower amounts of stress, pressure, demands, and misery.

Anonymous said...

Is it possible to buy into Tier 4? That is why the TDA is so important.

retired teacher said...

To 6:56 re medical benefits-- When you retire you lose your present medical and prescription benefits. Retirees pay for medical insurance. You can opt to stay with your current plan or use any other plan of your choice. As for prescriptions, you have to remain a dues paying UFT member to get prescription, dental and eye-glass benefits. The UFT prescription plan for retirees is not comparable to the really good plan that active members enjoy. Copays are higher and your meds better be in the formulary or you pay through the nose.
So when you read the comments from misguided individuals who think they'll live well on their pension they forget about paying for a medical plan, paying UFT Retiree dues and Federal taxes come out of the pension.

Anonymous said...

Why have I been hearing for years that retired teachers do NOT have to pay for medical insurance? (Other than copays?)What is the medical benefit of being vested?

Anonymous said...

Regarding the "optional rider". How much monthly does this cost? Is the optional rider cheaper than most traditional insurance plans?

Anonymous said...

Chaz: You are like a guru to new and veteran teachers alike. You should do a piece about the realities of what retirement after teaching in NYC is like. We would like to know some of the common game plans that teachers do after they retire. (Do most keep working in a different type of job?, what about F-status, etc.)

Jerome'smom said...

10:59am Amen! Unfortunately,retiree still wait for retro payments

Anonymous said...

Chaz, Do you have an opinion on what a 30 year teacher age 55 should have in her TDA in order to not worry so much about about retiring and rising costs, medical coverage etc.... I know there are no guarantees but since you're well informed, I welcome your best guess or further information on the topic.

Anonymous said...

I think that the retired teacher mythology comes from that the teachers people talk about are TIER I who have a different set of guidelines and many of those TIER I teachers left NEW YORK CITY when they retired. Additionally, one needs to explore what assets they had. Most had a house they bought cheap for today's housing and sold in today's market. These are very different scenario than today's teacher. The middle class status has been eroding for a long time. The teachers are frogs and the water is near boiling. For a TIER IV teacher who wants to retire in place, this is a different story. This should be something to be researched.

Anonymous said...

2:05 - Non-educators derive great pleasure from spreading lies about teachers ("glorified babysitting" "tenure for life" "no federal taxes in retirement" "free medical for life" "annual cost of living raises for life" "full retirement at 20 years" "100% salary as retirement pension", etc.). Don't beleive anything without verifying at the source. My neighbor actually thought my pension is 100% of my pay (plus annual COLA) regardless of years teaching beginning at age 55. His explanation was he heard it was a "FULL" pension at 55. I spared him the Tier 6 details and I don't think he would have believed me anyway.

Chaz said...

Anon 7:29

Since you need 80% of your salary to comfortably live in retirement, let's figure this out.

As a 55/30 teacher, you will get a pension that's 60% of your salary. Therefore, you need to fund the additional 20%. If you have $300,000 in your TDA ans simply withdraw the interest (7%), that will give you #20,000 or the remaining 20%. As a 30 year teacher, a 10% TDA contribution rate would probably achieve that goal.

Anonymous said...

Chaz

Don't forget the corrosive action of cost of living (inflation) increases so the money needed to maintian the purchasing power of your 80% figure will rise each year a (bit).

Anonymous said...

Hey chaz off topic but just received a provisional placement in an ok school about a hour from my home. Do I have a choice or must I accept it. Had an interview and thought I didn't do a good job and now I'm being placed. Please let me know my options. Would call our union but that's a joke.

retired teacher said...

Concerning Vesting - Let's assume you work ten years, become vested and leave the system. You can start drawing your pension at the time you would have been allowed to retire had you stayed in the system. In addition you are not eligible for health insurance unless you are receiving a pension. You have to pay for health insurance and having only 10 years worth of contributions in TRS means that the pension will be negligible.
Once again I encourage UFT members to avail themselves of the annual free pension consultation. Also, try to get to one of the large group meetings they usually hold in the summer. They arfe very informative.

Chaz said...

I agree with retired teacher. The more you avail yourself to the services the TRS offers, the better informed you will be and better prepared for retirement.

Anonymous said...

I think you guys might like this one
http://atradventures.blogspot.com

Anonymous said...

To Retired Teacher and 6:56
Heath benefits are FREE when you retire. You also receive free dental, optical, hearing aid and basic legal. You will, upon retirement, have to PAY FOR PRESCRIPTION. The first three months of prescription plan is free, then you will pay approx. $230 per month for family plan, less for single. UFT then reimburses approx. $780 in March of each year, thereby reducing the actual cost of drug plan. The reimbursement might be less for single...not sure since I am on family plan. In order to get all this, you have to have the Optional Rider (as with GHI hi-option rider). SHIP - supplemental health insurance deducted, which is recommended in order to supplement city health plan and reimburses certain out of pocket expenses. Cost for SHIP is $10/month for single and $20/month if you cover spouse.
So, your pension check will have following deductions: federal tax, prescription plan, SHIP and UFT dues (about $20/month). Of course, always confirm anything posted with a UFT rep. I highly, highly recommend attending Pension Clinic meetings -- an enormous amount of info for everyone. Plan to attend one even if you're not close to retirement...knowledge is power.
Recent Retiree

Anonymous said...

what happens to your benefits at 55 if you resign with 20 years?

Chaz said...

You still get them. You just get a reduced pension.

Anonymous said...

Seems like some people are saying you do get retiree health benefits (for free) after 10 years of service and others are saying you don't, or you at least have to pay for them.

I have been looking into this but I can't find anything anywhere in writing that says you do get retiree health benefits are 10 years.

Chaz, can you clear this up for me or point me in the right direction?

Much appreciated, your blog is really great

Anonymous said...

After 10 years in the system and deciding to leave DOE...exit the system...u becomr eligible for the free health benefits UPON reaching the retirement age. Do if u quit at age 35 u wouldn't get the health coverage until ur retirement age. U don't get to quit and still continue health benefits.

Anonymous said...

I am planning to resign at the end of the school year. Moving to teach in another state. Will my dependents and I keep my health benefits over the summer?

Thank you for your help. Great website to stumble upon...

rina said...

Thank you for sharing such great information.It is informative, can you help me in finding out more detail on Retirement Planning