COLA Base Increase & Retiree Benefits Included

NOVEMBER 4, 2011: Phase III of Pension Reform has now passed the House with a unanimous vote to further alter the public pension benefit structure for future employees. In addition to future benefit changes (affecting those first hired on or after July 1, 2012), the House plan seeks a series of benefit enhancements for current retirees.

For information on how Pension Reform might impact new hires, please click here.

Most importantly, the House opted to follow the course set by the Senate and include a higher COLA base for state and teacher retirees. The new $13,000 base, if signed into law by Governor Deval Patrick, will take effect July 1, 2012. In addition, the House also agreed to an Association sponsored amendment that ties future increases in the state and teacher base to the investment performance of the Commonwealth’s Pension Reserve Investment Trust (PRIT) Fund.

Under the amendment, which was carried by House Public Service Committee Chairman John Scibak (D-South Hadley), an annual report, detailing the three-year investment performance of the fund, will be filed with the House by the Public Employee Retirement Administration Commission (PERAC). If the three-year return is greater than the assumed investment rate of return then the Legislature can raise the COLA base to a higher level beyond $13,000.

Association attempts to raise the base to a $15,000 or $16,000 level were stymied by a tough economic and investment market that is still recovering from the losses in 2008. According to a review by Patrick’s Executive Office of Administration and Finance, each $1,000 increase in the COLA base costs some $1.5 billion over the life of the pension funding schedule. At present, the Commonwealth’s schedule extends to 2040.

Municipal retirement systems, working in conjunction with their local legislative bodies, already have the authority to increase the COLA base beyond $12,000 for local retirees. Over 200 communities across Massachusetts now have a higher base, with an average increased base coming in at $15,000.

“The driving force for a higher base at the local level has been the investment success of the local retirement systems, as well as their community’s commitment to funding its commitments. Some systems have done very well and are in a position to raise the COLA base for their retirees – which is only fitting,” explains Association President Ralph White. “Senate and House leaders took a big step in moving the base forward in this bill. It might not seem like much, but with A&F’s price tag of $1.5 billion we had to fight tooth and nail just for a $1,000 increase.

“Don’t forget, the driving force behind this bill is pressure to reduce the pension liabilities over the next 30 years. The Legislative Leadership did what it could to balance the need to reduce future costs, with the immediate needs of retirees.”

The bill is now before a joint House and Senate Conference Committee, where the differences between the two versions of the bill will be negotiated. House conferees are Chairman Scibak, Ways & Means Chairman Brian Dempsey (D-Haverhill) and Rep. Ryan Fattman (R-Sutton). Senate conferees include Public Service Chairwoman Katherine Clark (D-Melrose), Ways and Means Chairman Stephen Brewer (D-Barre) and Senator Michael Knapik (R-Westfield).

With the Legislature set to recess from formal session on Wednesday November 16, the Conference Committee is thought to be fast tracking a compromise bill for final passage by that date.

Additional Benefit Enhancements

In addition to the COLA base increase; the House bill (HB3787) also contains the following benefit enhancements for retirees.

Minimum Pension: Increases the minimum pension for state & teacher retirees to $15,000 for those with twenty-five year or more of creditable service. Creates a local option for municipal retirement systems to increase the minimum pension up to $15,000 for retirees with at least twenty-five years of creditable service. The benefit is designed to assist career public employees who are receiving very modest retirement benefits.

Increased Survivor Benefit: Earlier passed in the Senate, the House has also increased the minimum pension for survivors of active employees, who die while prior to retiring, from the current $3,000 to a new $6,000 annually.

Post Retirement Earnings: Superannuation retirees are allowed to return to public employment on a part-time basis after retiring (Disability retirees are also allowed to work part-time, but under a different section of the law that is not impacted by this change). Current law restricts this employment to 960 hours per calendar year, with an earnings restriction of the difference between one’s pension and what their former position currently pays. The provision, passed by both the Senate and House (slightly different wording, to be ironed out in Conference Committee), adds an additional $15,000 to the amount which a superannuation retiree can earn per year when returning to public employment within Massachusetts (federal government excluded).

Disability Earnings Reporting: A long-standing complaint from members, retired on disability pensions, is the statutory requirement to file an annual earnings report with the Pubic Employee Retirement Administration Commission (PERAC). Currently the law does not differentiate between those retirees who are actively working or those who have not worked at all in many years. The House provision, which was crafted with the assistance of our Association and PERAC, would waive annual reporting requirements for those retirees who have been retired twenty or more years and not had reportable income in at least ten years.

Also, the House bill creates several studies of the public pension system, as well as a report aimed at reducing the cost of health insurance benefits. With reporting dates in 2012, the studies have no immediate impact on retiree or employee benefits. However, each requires close monitoring by our Association as nefarious plans to reduce benefit levels or otherwise negatively impact retirees and survivors could emerge.

Other Post Employment Benefits (OPEB) Study: Instructs the Health Care Security Trust to commission a private study of Group Insurance Benefits, aimed at cost saving measures and an analysis of how Massachusetts compares to other state plans. Since a private sector vendor would conduct the study, there is no commission overseeing the report.

Disability Retirement Study: Creates a special commission, chaired by the House and Senate Chairs of the Joint Committee on Public Service, with the task of reviewing our current disability retirement law and practices. Special emphasis may be placed on return to work and benefit modification, as well as the injury leave for public safety officers (111 F). Our Association has been granted a seat on this commission.

Defined Benefit vs. Defined Contribution Study: Requires the State Treasurer to initiate a private study of the public retirement system. Special emphasis will be placed on the costs and benefits of requiring new employees to participate in a new defined contribution (DC) plan, rather than the current retirement system. Since a private sector vendor would conduct the study, there is no commission overseeing the report.

Merger of Retirement Systems Study:  Similar to the DB vs. DC study, this section also requires State Treasurer Steven Grossman to commission a special report on the potential benefits and/or costs of merging all 103 local retirement systems into one “mega system” to be administered by PERAC. Since a private sector vendor would conduct the study, there is no commission overseeing the report.