Expands Pension Funding & Proposes 3% COLA
WEDNESDAY, MARCH 1, 2023: Governor Maura Healey has filed her first state budget proposal, formally kicking off the FY24 budget process.
The $55.5 billion “spending blueprint” focuses on taming the high cost of living in Massachusetts, while investing heavily in the state’s future. This includes a new three-year appropriation schedule for the Commonwealth’s Pension Liability Fund, which funds both the State and Teachers’ Retirement Systems.
The new funding schedule was agreed upon in January by Healey and legislative leaders, based on the recommendations put forth by the Public Employee Retirement Administration Commission (PERAC). Covering three fiscal years, 2024 through 2026, the new schedule represents the first time that the annual pension appropriation has surpassed $4 billion. Specifically, the three-year schedule calls for (i) $4,104,583,378 in fiscal year 2024; (ii) $4,499,854,757 in fiscal year 2025; and (iii) $4,933,190,770 in fiscal year 2026.
Like Massachusetts’ 102 local retirement systems, the Commonwealth’s pension funding schedule pays off the systems’ unfunded liabilities and funds the employer’s share of the pension benefits earned by current public employees. State and local budget appropriations also help to pay for the ongoing costs associated with COLA benefits.
In terms of the FY24 COLA for members of the State and Teachers’ Retirement Systems, Healey’s budget proposes a 3% COLA on the current $13,000 base. Mass Retirees officials have recently engaged in a series of meetings with legislative leaders, with the hope of including a State and Teacher COLA base increase within the FY24 budget.
Mass Retirees has filed legislation to increase the State and Teacher COLA base to $16,000 starting in FY24. This incremental increase of $3,000 above the existing $13,000 base does not require an additional appropriation from the state in FY24. Any new costs associated with the COLA or other gains and losses experienced by the retirement systems will be accounted for during the Commonwealth’s next pension valuation in FY27.
“While we would have welcomed a State and Teacher COLA base increase within the Governor’s budget proposal, realistically we did not expect it to be included. Traditionally, the COLA base has always been increased through the legislative process,” said Mass Retirees President Frank Valeri, who is also an elected member of the State Retirement Board. “Given the fact that it has now been 12-years since the State and Teacher base was last increased, we believe that a very strong case can be made as to why it should be increased within the FY24 budget.
“It is also important for us to speak to the costs associated with increasing the COLA base and how those costs impact the pension funding schedule. We believe that the Commonwealth’s Pension Fund is well positioned to absorb the cost of incrementally increasing the base. And this can be done without impacting the agreed upon 3-year pension funding schedule that is contained in this budget. State and Teacher retirees need help. Now is the time to improve these benefits.”
In addition, the FY24 budget blueprint fully funds the state’s Group Insurance Commission (GIC). No changes have been proposed to the existing contribution rates of retired or active state employees. State retirees now contribute 10, 15, or 20% depending on their retirement date. Active state employees contribute either 20 or 25%, based on their date of hire.
Healey’s proposal contains a direct state appropriation of more than $2.7 billion for the GIC.
Now that the spending blueprint has been filed, the work will fully get underway by the House and Senate Ways and Means Committees on the two legislative versions of the FY24 budget. The House will file and debate its version in late April, followed by the Senate in late May. House and Senate conferees will then negotiate a final consensus budget, which will be approved by each legislative branch before being sent to the Governor in early summer.