Alternative Retirement

NOV 2006 - Unlike Governor Romney and Lt. Governor Healey who believe
there is room for an alternative retirement plan within our state’s current
universal defined benefit (DB) plan, our Association’s position is that all
public employees should be members of the current DB plan which applies to all
106 of our retirement systems.

However, there is one little-known defined contribution (DC)
plan that has been in existence for some 11 years within the Commonwealth’s
Board of Higher Education. The plan, officially known as the Optional
Retirement Plan (ORP), is open to all newly hired faculty and senior
administrators of the 5 UMass schools, 9 state colleges, and 15 community
colleges.

New hires have 90 days to join the ORP, otherwise they
become members of the state plan. Non-vested (less than 10 years service)
faculty were given the option of transferring to the ORP plan within 90 days of
its inception. Those who chose to join the ORP received a transfer of their
contributions in the state fund to the ORP. A decision to join the ORP is
irrevocable.

There are 2,757 active employees currently in the ORP and
another 2,500 inactive employees who have left their money in the plan, which
under IRS regulations is a 401(a) plan. This is similar in some ways to a
401(k) plan.

Members contribute the same percentage of their salary to
their account that state employees contribute to their pension fund. In
addition, the state contributes 5 percent to each account from which life and
disability insurance and administrative overhead costs are deducted, leaving a
net contribution of 4.3%. Health insurance contributions are the same as
retirement system members.

ORP participants have a variety of investment options. The
current managers of these plans are the Lincoln Financial Group, TIAA CREF and
AIG. A participant’s retirement income is based on the accumulations in his
account.

The ORP is administered by Peter Tsaffaras, the Board of
Education’s Director of Employee Benefit Relations.

Tsaffaras has an excellent understanding of our Chapter 32
DB retirement plan, which is necessary so that he can explain the pros and cons
of both the ORP and our DB plan. Although Tsaffaras, himself, is a member of
the state retirement plan, he doesn’t take sides. “It’s an individual
decision,” he said.

Tsaffaras, a Quincy
resident, has an office in the McCormack building, upstairs from the State
Retirement Board. About one-third of eligible Higher-Ed people select the ORP
he said. When asked how many plan enrollees inquire about transferring to the
state plan, he replied, “About eight or ten each year. Sometimes it depends on
how the market is doing.” Because the plan is relatively new, Tsaffaras said
that only a dozen or so have thus far retired.

The Legislature enacted the plan at the urging of the Mass
Teachers’ Association and Higher-Ed officials so that our state’s higher
education systems could attract educators from outside of Massachusetts
who would otherwise be reluctant to transfer because of a lack of portability.

“Several unions and our Association were opposed to the
legislation at the time it passed. We respect the MTA,” said Association’s
President Ralph White. “But there was a very real fear that the DC concept
would spread to other areas of government, weakening our state’s pension fund
which depends on a large pool of investment capital.

“Although Governor Mitt Romney touched on the DC concept, a
401(k) type plan, when he first took office, he soon became engaged in other
pursuits and it went by the wayside. Fortunately, the Higher-Ed ORP plan has
remained below the radar screen. But it’s certain that Kerry Healey knows about
it.”

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