By Cliff Clark
Sentinel & Enterprise

By Cliff Clark
Sentinel & Enterprise

LEOMINSTER — If a bill introduced by two local state legislators is adopted and signed into law, the city’s Retirement Board would have a tougher time denying cost-of-living adjustments to its retirees, something it has done for the last six years.

“At this point, I think it’s the only way to do it,” said John Perry, an elected member of the Retirement Board, about the proposed legislation that would compel retirement boards across the state to grant a 3 percent cost-of-living adjustment if the returns on the pension system investments exceed the city’s assumed rate of return for two consecutive years.

The city’s retirement system uses an assumed rate of return on its pension investments of 5.

5 percent, the lowest in the state, as one of the factors when establishing its funding schedule to meet the state-mandated goal of having its pension liability fully funded by 2040, which the city is scheduled to complete 18 years early in 2022.

However, its actual investment returns over the last 30 years have been 8.77 percent, including nearly 22 percent in 2013-2014 when its pension investment fund grew from $117 million to $143.8 million, according to an actuarial report prepared for the city by Stone Consulting Inc.

For Frank Valeri, the president of Mass Retirees, the state’s retiree advocacy association, that amount of growth in the city’s pension fund means the system could easily afford to grant a cost-of-living increase to its retirees.

“Because of the investment gains in 2013, there would have been no impact, based on the funding schedule,” said Valeri, who complimented city Comptroller John Richard, who is also chairman of the Retirement Board, on his “excellent” management of the city’s pension investments.

Richard acknowledged the city “had a good year” with its investment income.
However, he said, “hopefully, it cut into the debt,” referring to $37 million of the city’s total pension debt of $181 million that is considered unfunded.

“That’s what we hoped to do over time,” Richard said.

When the Retirement Board voted 3-2 in late June to deny a 1.7 percent annual pension increase, or about $360 a year for the average retiree, Richard said at the time in voting against the raise that the city was seeking to insure the long-term health of the retirement system.

The 1.7 percent cost-of-living increase, voted down in June, would have increased the city’s pension liability $1.07 million, according to a filing the city submitted to the state’s Public Employee Retirement Administration Commission, and would have increased the length of its funding schedule by about six months.

Valeri said there are several other cities across the state that have denied cost-of-living raises for its pensioners and, from his perspective, there is a greater focus in those cities to following the funding schedules than taking care of their retirees.

“The holy grail of being fully funded has become more of a priority than taking care of members of the system that paid into it,” he said.

State Sen. Jennifer Flanagan said that for the city to continue to deny a pension increase to its retirees is “unacceptable.”

“These are the people who were called upon by the city to make sure the streets were clean, kept our communities safe and taught our children,” the Leominster Democrat said.

She also said the proposed legislation would make the cost-of-living process more transparent.

The current statute, which would be amended if the legislation is adopted and signed by Gov. Charlie Baker, reads that a local retirement board can deny a cost-of-living increase because it will “substantially impair the funding schedule of said system and (the board) shall file a notice of its election not to pay and analysis of the impact on the funding schedule” to the Public Employee Retirement Administration Commission within 30 days of its action.

The notice that Leominster’s Retirement Board sent to PERAC in 2014 and 2015, notifying it of the decision to deny the raises, were identical and had two sentences addressing the affect on its funding schedule.

“The Present Value Cost of granting a (cost-of-living) increase at the 5.5 percent discount rate (which is the same as the assumed rate of return) adopted by the Board was determined to be $1,077,000. Amortization of this amount over subsequent years is more costly than this amount,” reads the letter sent by the city’s Retirement Board to PERAC to meet the statutory requirements.

Flanagan said amending the statute would establish clear guidelines of when a cost-of-living raise must be granted by a city.

Richard said, however, that decisions regarding the granting of cost-of-living increases should continue to remain local.

“The state shouldn’t force cities to incur liabilities that it’s not paying for,” Richard said. “The increasing of liabilities is the most expensive debt a city or town can undertake.”

Flanagan, whose bill is co-sponsored by state Rep. Stephen DiNatale, a Fitchburg Democrat, in the House of Representatives, said the bill is currently in the Public Service Committee.

She was unsure when it might be referred out of committee for an eventual vote in the Senate and House.

Nona Olaja, a school-district retiree and School Committee member, hadn’t heard about the proposed legislation until Tuesday, but is excited about the news.

“That would be great if that could happen,” she said.

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