Optimal Option: SUNY's Personal Retirement Plan As a Model for Pension Reform

Defined-contribution plans are personal retirement accounts sup­ported by employer and em­ployee contributions. In contrast to traditional pensions, they can follow employees if they change jobs, and the pension account is usually not wiped 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 large majorities of professional employees in both systems have chosen it over the standard 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 benefits from one employer to another.
• Governor Cuomo’s proposed Tier 6 pension reform would al­low new state and local government employees, including teachers, to choose defined-contribution retirement 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 total contributions of at least 12 percent of salary, with employee shares matching the levels proposed under the governor’s proposed Tier 6 defined-benefit plan.
• State officials need to give more careful consideration to defined-contribution plan design features to ensure that employees are provided with fairly priced investment and annuity choices tailored to their long-term goals.
• The creation of a universal defined-contribution option for new state and local government employees in New York is a golden opportunity to create a national model for pension reform.

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