ALBANY, N.Y. (Reuters)—New York state lawmakers have approved a pension reform measure aimed at saving $80 billion over 30 years by reducing benefits for newly hired state and local public workers.

New York Gov. Andrew Cuomo praised the bill, which was enacted by the Legislature late Wednesday, as key to maintaining the state's fiscal health. The bill also provides a safeguard for municipalities that will protect them from any financial burden if pension benefits are increased.

Spiraling pension obligations are one of the top financial problems faced by state and local governments across the United States.

The New York law reduces retiree benefits for future state and local government workers, increases retirement plan contributions by higher-earning public employees, and raises the retirement age by a year to 63. It also reduces how much overtime can be used to calculate pension benefits.

"Without this critical reform, New Yorkers would have seen significant tax increases, as well as layoffs to teachers, firefighters and police," Gov. Cuomo said in a statement.

New York City Mayor Michael Bloomberg also applauded the bill, which was enacted along with other measures to expand casino gambling and the state's criminal DNA database.

"Skyrocketing pension costs have caused fiscal crises in many cities and counties around New York, cutting into local governments' ability to deliver core services," Mr. Bloomberg said in a statement. "That's why mayors and county executives—from both parties, and from every region in the state—came together to support Governor Cuomo's plan."

Under the bill, the state will have to pay for any increases in pension benefits enacted, instead of forcing counties, cities and towns to pick up the bill for part of the pension systems they did not approve.

Mr. Bloomberg has said that the state government's decisions were among the main reasons the cost of the city's pension contributions has jumped to $8 billion in 2012 from $1.5 billion in 2002.

The bill also provides that new, non-unionized employees earning at least $75,000 a year for the first time will have the option of selecting a 401(k) defined-benefit thrift plan.

Mr. Cuomo initially had proposed a more ambitious pension reduction plan that would have saved municipalities and the state $113 billion over 30 years.

State and local governments grappling with high pension costs also face mounting pressure to lower their expected rates of return on pension fund investments. Many critics, including some in Congress, regard the current rates of return as overly optimistic. Cutting assumed return rates drives up annual pension contributions.

Earlier this week, the board of California's pension fund, one of the largest in the country, voted to lower its assumed rate of return to 7.5% from 7.75%.

New York City's actuary has recommended reducing the investment rate of return to 7% from 8%.