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Governor Cuomo has proposed a new benefit tier for future state employees, known as Tier VI. It would, for the first time, offer as an option a defined contribution plan, similar to a 401k.
Cuomo and other supporters say that, in addition to saving billions of dollars when the new employees retire 30 years from now, it is also attractive to workers who may spend just a short time in state government and want a portable plan.
But Senator Diane Savino, a member of a swing block , the Independent Democratic Conference, raised some objections, and cast doubt on whether the legislature would be ready to accept Cuomo’s proposal for the Tier VI benefits plan by the budget deadline.
“This is a very complicated issue,” Savino said. “None of us believe it could be accomplished in time for the April 1st budget deadline.”
Senator Savino, a former high ranking union official, says municipal union leaders in New York City have not yet been adequately briefed on a policy that would represent a big change for public pensions.
The new benefit tier would not have any effect on this year’s budget, and would not bring in any real savings for decades.
Senator Savino was speaking at a joint legislative fiscal committee hearing. She says a defined contribution retirement plan, like a 401k, is too dependent on the vicissitudes of the stock market.
“We’re going to wind up with seniors who are going to become dependent on (public) assistance,” said Savino. “That’s not what we want for our future retirees.”
At the hearing, Governor Cuomo’s budget director, Robert Megna, told lawmakers that the Tier VI proposal’s defined contribution plan, which would be similar to the TIAA -CREF plan currently offered to employees at the State university system, is more generous than almost anything in the private sector.
“It’s still a significant advantage over what most private sector employees receive,” Megna pointed out.
And Megna says most private sector companies no longer offer defined benefit plans; nearly all have switched to 401 k’s.
Governor Cuomo and his budget director received some support from a conservative think tank. The Empire Center’s E. J. McMahon says the state can no longer afford to offer such generous benefits to workers that “exposes taxpayers to intolerable levels of financial risk and volatility”.
But union leaders who testified continued to express grave concerns. Joe Fox, a Vice President for the Public Employees Federation, one of the major state worker unions, says the Tier VI proposal is misnamed as a reform, and would actually mean a lower standard of living for future retirees. In a statement, he said the plan would be “destructive to public service” and is “symptomatic of the selfish I-got-mine attitude” that has allowed the wealthy to flourish at the expense of the remaining “99 percent.”