May 2012 Issue
April 17, 2012

TRS: How does Tier 6 affect current employees?

Source: NYSUT United
TRS representatives

Q: Is there any way Tier 6 can be imposed on current employees? Can the Legislature and governor make a law that would reduce my retirement benefits down the road? I still have 10 years to go!

A: By law, the pension you receive cannot be reduced or diminished — this includes in-service members and retirees.

In 1935, New York's highest court, the Court of Appeals, ruled that pensions of retired public employees cannot be diminished or impaired. That principle was subsequently preserved in Article V, Section 7, of the New York state Constitution, which states membership in a public employee retirement system “shall be a contractual relationship, the benefits of which shall not be diminished or impaired.” For retired teachers, that means pensions must be paid on schedule and in full.

And for in-service members, your benefits are locked in, depending on which tier you are in. Tier 6 will only affect the contributions and benefits of members who join a New York state public retirement system on or after April 1, 2012.

trs membersQ: I heard that Tier 6 employees will have to contribute more toward their pensions. Will that mean employers will pay less? How much are current employees paying?

A: Tier 3 and 4 members are required by law to contribute 3 percent of salary until they have been TRS members for 10 years or accrue 10 years of total service credit, whichever occurs first. Tier 5 members contribute 3.5 percent of salary throughout their active membership.

Tier 6 is unique because contributions are determined on a sliding scale. Specifically:

Tier 6 members will pay 3.5 percent in contributions regardless of salary up to April 1, 2013. After that, the contribution rate in a given school year is based upon regular compensation in the school year two years previously, as follows:

Wages of $45,000 or less, 3 percent; more than $45,000 to $55,000, 3.5 percent; more than $55,000 to $75,000, 4.5 percent; more than $75,000 to $100,000, 5.75 percent; and 6 percent on wages more than $100,000. (Any income above the governor's salary, currently $179,000, will not be eligible for pension calculation.)

Required contributions help fund your pension at retirement.

When investment earnings and employee contributions are not sufficient to fully cover the system's liabilities, the employer contribution rate is adjusted to assure full actuarial funding of the system's benefit obligations. While economic conditions have necessitated recent rate increases, it should be noted that for 22 years, beginning in 1989, the employer rate was in single digits. In six of those years, the rate was below 1.5 percent of pay.

In fact, investment earnings have become the primary source of income used to fund benefits. Over the past 20 years, investment earnings have accounted for 87 percent of the TRS's income. Member contributions have accounted for just 3 percent of this total, with employer contributions accounting for the other 10 percent.