In an attempt to remedy an extreme budget deficit, New York state announced significant changes to its public pension system. New York state is somewhat unique in that pension benefits for state and local public employees are primarily determined by state law rather than through negotiations with public employee unions. However, the state constitution prevents state government from imposing changes retroactively on employees who are already in the pension system.
- Changing the retirement age back to age 62 from age 55.
- Employees would have to contribute to the pension system throughout their working career, instead of for only the first ten years of service.
- Overtime pay would not be counted in determining the pension benefit amount, thereby eliminating the commonly used benefit padding strategy of working extra overtime in the last year or two of service.
- Pension vesting for many employees would increase from five years to ten years.
- Uniformed employees would now have to work at least 25 years before retirement.
Like many large U.S. corporations, state and local governments are burdened by significant legacy benefit costs, including pension plans funded by pension funds that have lost hundreds of billions in 2008. This doesn’t affect me because I have never been subject to any pension plan. I have to count on Social Security, my 401k plan, and our other investments. Unlike government employees who can retire with full benefits at age 55 or 62, the rest of us have to wait until age 70 to maximize Social Security retirement benefits.
It will be interesting to see: (a) if the legislature in New York approves a budget with pension reforms as proposed; (b) if other state and local governments follow New York’s lead on this issue; and (c) the extent to which these pension reforms will affect baby boomers as compared to newer and younger government employees.
Overall, it seems that the financial and economic problems of 2008 may be causing a reversal of the previous trend of increasing reliance on government retirement help to one of self-reliance. Unfortunately, the upheaval in the markets and news of related scandals (Madoff and others) have left U.S. workers with few trustworthy options in growing their own retirement funds.
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This week Mr. GoTo participated in the following blog carnivals:
Image credit: Steve Woods