New York plans sweeping pension reforms

One of the key proposals in the executive budget put forward by governor David A. Paterson was the re-raising of the retirement age from 55 back to 62, and the the creation of a new tier of benefits (Tier V) for state and local employees.

Governor Paterson said: "With the State facing a fiscal emergency, we need to look for innovative ways to improve the operations of our government and deliver services more effectively.

"These reforms are a first step toward fundamentally re-evaluating the way we do business, which will mean significantly lower costs for taxpayers over the long term."

Other pension reforms put forward by Paterson included the requirement that employees contribute to the pension fund after their tenth year of service and the restoration of the number of minimum years of service required to draw a pension from five to ten.

Another key reform of Tier V was the exclusion of overtime compensation when calculating pension benefits, aimed at preventing 'salary spiking' in an employee's final years of service.

The reforms will only affect new employees, in line with the state constitution.

With a projected deficit of US$13.7bn in 2009-10, Paterson said 'unsustainable' spending increases over the past few years, propped up by Wall Street, were no longer possible in the current economic environment, leading to 'unavoidable' and 'difficult' changes.