I Team 10 Investigation: Pension Perk

Posted at: 08/03/2012 11:18 PM | Updated at: 08/04/2012 12:49 AM

There's been a lot of talk this year about pension reform in New York State. But when it's time to retire, public employees not only get a pension... they get one that's tax-free.

I-Team 10 wanted to know why others don't get the same tax break.

John Piccone worked at Delphi Corporation for 37 years before retiring with a nice pension. But each month, when that pension check arrives, it's a little lighter thanks to New York State.

"I would love to be able to say I'm not going to get taxed -- on money I've already been taxed on," says Piccone.

Piccone's pension is subject to state income tax.

"If I have to pay and if it's the law, then everybody should be taxed the same way, everybody should be treated equally and equitably the same way," he says.

Currently, anyone over the age of 59 1/2 from the private sector will pay state income tax on a pension above $20,000.

But I-Team 10 has learned that retired government workers and teachers pay no state income tax at all on their pensions.... something that got us wondering why they're entitled to special tax breaks that aren't available to everyone else. Shouldn't they also be taxed?

"If you start doing that -- okay -- people will start moving away," says Rochester Teacher's Union Vice President John Pavone.

Public employee unions say they're already being made a scapegoat in the name of pension reform and point out that many of their members contribute to the state pension fund during the first ten years on the job.

"They put that pension in place and they made it attractive so you could get into the teaching profession, because the teaching profession, especially at that time, was not making a lot of money," says Pavone.

We got on the phone with the State Department of Taxation and Finance, and found out that if government and teacher retirees in New York were fully taxed on their pensions the state would haul in an extra $862 millions a year. We were unable to get an exact figure if taxes were excluded from the first $20,000 as they are in the private sector.

Still, with so much talk about the pension system going broke, we took that number to State Comptroller Thomas DiNapoli.

"I think we need to keep in mind that 80% of the retirees from our system choose to live in New York. Perhaps having that tax break is one reason why they live here," says DiNapoli.

A good point. DiNapoli says the state pays out $8.5 billion dollars in benefits a year... meaning it gets billions recycled back into our economy. But if that's the argument, why not give everyone that break?

"Really, people exit this state when they retire because they can keep more of their well-deserved pension in other states," says Assemblyman Brian Kolb of Canandaigua.

Kolb has sponsored a bill that would make private pensions under $100,000 tax-free.

"The whole goal here Brett, is really to get people to want to stay in New York State when they retire," says Kolb.

Many retirees head for states like Florida and Nevada which have no income tax.

DiNapoli says on balance, he thinks the system we have now in New York has worked pretty well. Still, he didn't dismiss the idea of extending the tax break to everyone.

"When you look at those in the private sector, perhaps those are moving out of state. Maybe if we enhance that benefit more of the money will stay in the state as well. Might be something for us to look at," says DiNapoli.  

Piccone says it's not about trying to stick it to public employees.... it's about fairness.

"To me it's like, those are the rules, but is it equitable? Is it fair? No, I don't think it is," he says.

DiNapoli points out that the average public pension is about $19,000 dollars.

Even if they wanted to tax state pensions, it might take a constitutional amendment. That's because in the past judges have ruled it's not just a tax break, it's a pension benefit, which are constitutionally protected in New York.

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