Saturday, January 20, 2018
Two Simple Charts That Compare Tier IV and Tier VI Pension Plans.
Most New York City teachers are either part of two pension systems. For teachers who were hired before April 1, 2012, they are under the Tier IV pension system. The remainder, who were hired after April 1, 2012 are under the vastly inferior Tier VI pension system. Because of the UFT contract, few, if any New York City teachers are under the Tier V pension plan. However, teachers hired after December 10, 2009, while under Tier IV pension plan, have some aspects of Tier V. See my post that explains this in more detail.
Both charts take into account an age reduction factor and its obvious under the Tier VI pension plan the age reduction factors makes for a greater reduction of a pension under Tier VI than Tier IV. Moreover the Final Average Salary (FAS) is five years for Tier VI members rather than the three year FAS for Tier IV. The use of a five year FAS has the effect of lowering the average FAS for the Tier VI member. Finally, full retirement age is 62 years for Tier IV members and in quite a few cases, as low as 55 years of age. By contrast, tier VI members must reach to 63 years of age and there is no program that allow Tier VI members to retire early, unless they take a steep age reduction factor that will greatly reduce their pension.
For example if we take a Tier IV teacher that retired after 25 years of service. He would receive 50% of his FAS. On the other hand, the Tier VI teacher would only receive 43.8% of his five year and lower average FAS. Even at 20 years, the difference is significant, The Tier IV teacher would receive 40% of his three year average FAS, while the Tier VI teacher would only receive 35% of his average five year FAS, While reaching his or her full retirement age one year later. Of course, I suspect that few Tier VI teachers in New York City will be vested, least not to make it to their full retirement age. Maybe one out of seven or eight (12% to 14%) would be my best guess.