New York Labor and Employment Law Report : New York Employment Lawyer & Attorney : Bond Schoeneck & King Law Firm : NY Labor Relations, Employee Benefits

1) Eligibility for 55/25 Legislation

•  Must be a member of ERS or TRS;
•  Must be a member of NYSUT;
•  Must be an employee of an educational employer (school district, board of cooperative educational services, vocational education and extension board, institution for instruction of the deaf or blind, State University of New York ("SUNY"), and community colleges) that employs members of NYSUT;
•  Must be at least 55 years of age and have 25 years or more of creditable service;
•  Must be on active service, which is defined as being in continuous service and on the payroll from February 1, 2010 until June 1, 2010.  However, the following classes of employees are deemed to be on “active service” by the legislation and thus eligible for the early retirement benefit:
  • Those employees on a paid leave of absence; and
  • Those employees on an unpaid leave of absence that does not exceed 12 weeks from February 1, 2010 to the commencement of the “open period” (which is June 1, 2010 for school districts).

2) Timing of Benefit

• The open period for employees of school districts begins on June 1, 2010 and ends on August 31, 2010. For SUNY and community colleges, while the open period is capped at 90 days, and must end on or before December 31, 2010, the legislation does not mandate a certain date for the commencement of the open period.  In order for the law to apply, the effective date of the retirement must be during the open period.
• Employees who wish to apply for early retirement without penalty under this benefit must fill out the appropriate retirement application not less than 14 days prior to the effective date of their retirement.

3) Cost of 55/25 Legislation

• The per-member cost for each employee who receives this early retirement benefit will be approximately 110% of the employee's final average salary.
• The total cost of this legislation is estimated to be $13.2 million, or .09% of payroll.
•  For every 100 employees that retire under this legislation, there will be an increased cost of approximately $260,000 to the State and $360,000 to participating employers.
•  The legislation estimates the number of people who will retire under this legislation will be under 1000.

4) Impact on Retirement Incentives in Collective Bargaining Agreements

• The legislation explicitly states that it does not affect in any way other retirement incentives provided by collective bargaining agreements that were negotiated prior to the effective date of the legislation.
   

Employee Contributions

Most ERS and PFRS Tier V members will contribute 3% of their salary for all their years of public service. The legislation requires members of TRS to contribute 3.5% of their annual wages to the TRS for the duration of their employment. Presently, Tier IV members of ERS and TRS contribute 3% of their salary for their first 10 years of creditable service; members of PFRS are not presently required to contribute at all.

Vesting

No Tier V members will be eligible for service retirement benefits until they have completed a minimum of 10 years of credited service. Currently, employees participating in Tier IV ERS, PFRS and TRS become fully vested after only five years of credited service.

Overtime Earnings Restriction

Overtime earnings are generally included in the employee’s final average salary calculation used to determine a retiree’s pension allowance. In an attempt to prevent “salary spiking” in an employee’s final years of service, the legislation creates an “overtime ceiling” which limits the amount of overtime earnings that may be included in the definition of wages when calculating an employee’s final average salary. The "overtime ceiling" is $15,000 per year effective January 1, 2010. The “overtime ceiling” increases by 3 % each year thereafter.

Early Retirement Eligibility

The legislation also raises the minimum age for retirement without penalty for members of the TRS from age 55 with 30 years of service to age 57 with 30 years of service. While the legislation does not increase the age at which ERS members can retire without penalty (it is still 55), it does, however, increase the amount of the “penalty” that these members incur for retiring prior to reaching age 55.

Other Significant Changes

In addition to creating Tier V, several other issues which significantly impact public employers are addressed by the legislation. First, the legislation makes permanent the prohibition on reductions to retiree health insurance benefits or increases in retiree contribution rates by school districts, unless the same reduction in benefits or increase in contribution rates is made for the corresponding group of active employees.

Finally, the Legislature expressed an intent to enact an early retirement incentive for members of New York State United Teachers ("NYSUT") during a three-month window in calendar year 2010.  If the Legislature follows through and enacts the incentive, NYSUT members in TRS and ERS who have reached age 55 and have accumulated 25 years of service will be permitted to elect to retire early during that window without penalty.

The ERS/PFRS  as well as the TRS have created summaries for their members which outline the above-referenced changes implemented by the legislation as well as some additional changes not specifically cited here.

 Howard M. Wexler contributed to this post.