Employer Pension News

OSC Proposal to Mitigate Projected ERS Contribution Rate Increases

Last week the Comptroller held a press conference to announce that stock market declines over the past year will result in significant employer contribution rates due in December 2010. Given the current smoothing method used by the retirement system, these increases are expected to keep rising for the next five years and could hit highs (near 30% of salary) matching those of the early 80’s.

In acknowledgement of the potentially devastating impact such rates would have on local government budgets, the Comptroller has proposed legislation that would allow local governments and school districts to opt into a program to pay a “mitigated rate” (increasing 1% per/year with a cap of 9.5%) and finance (for up to 10 year at an interest rate determined by the Comptroller) the difference between the mitigated rate and the actuarially calculated actual rate. In years where the mitigated rate may be above the actual rate (and districts have paid off amortizations) employer “side accounts” would be established and applied to offset future contribution rate increases.

According to the bill language, a school district can opt into the financing plan at any time, however, once in, the district can not opt-out.

This would be a voluntary program and would apply only to ERS. At this time, there is no current plan by TRS to put forth a similar financing proposal.

Initial response by the Governor was negative. Presented with the proposal, Mr. Paterson said that such short term fixes are not advisable and instead touted his veto of pension enhancements for police and firefighters and his proposal for establishing a new Tier V.

Proposed Expansion of Retirement Contribution Reserve

For long-tern planning purposes, school districts currently have the option to fund a Retirement Contribution Reserve Fund. But this fund only permits funding future anticipated contribution liabilities for ERS. A bill (A4177-Galef/S4845-Oppenheimer) has been introduced that would broaden this reserve to include contribution liabilities for TRS. NYS School Board Association has provided the attached memo and is encouraging school board members to contact their legislators in support of the bill. We encourage school business officials to do the same.