What you’ll learn from this report:
are personal retirement accounts supported byemployer and employee contributions. In contrast to traditional pensions, theycan follow employees if they change jobs, and the pension account is usually notwiped out if an employee dies before retirement.
The State University of New York (SUNY) and City University of New York (CUNY)have offered a defined-contribution retirement option since the 1960s, and largemajorities of professional employees in both systems have chosen it over thestandard pension mandated for other public employees.
The SUNY and CUNY model, built on annuities designed to provide a stream of lifetime income, differs in key respects from a typical private sector 401(k)defined-contribution plan.
Defined-contribution plans are portable, allowing workers to take their benefitsfrom one employer to another.
Governor Cuomo’s proposed Tier 6 pension reform would allow new state andlocal government employees, including teachers, to choose defined-contributionretirement plans or a traditional defined-benefit public pension.
The baseline funding level of 4 percent of annual salary for the proposed defined-contribution plans is too low.
A new defined-contribution plan for state and local employees should require totalcontributions of at least 12 percent of salary, with employee shares matching thelevels proposed under the governor’s proposed Tier 6 defined-benefit plan.
State officials need to give more careful consideration to defined-contributionplan design features to ensure that employees are provided with fairly pricedinvestment and annuity choices tailored to their long-term goals.
The creation of a universal defined-contribution option for new state and localgovernment employees in New York is a golden opportunity to create a nationalmodel for pension reform.