Pension Reform 3 Now Law

JANUARY 2012 VOICE: Chapter 176, landmark Pension Reform, signed into law by Governor Deval Patrick on November 18, brings to a close the longtime concept of a public pension plan that provides full pensions for long-term employees, but allows a reduced pension for anyone who must retire before age 60.

Known as Pension Reform III, beginning next April 2nd, Chapter 176 prohibits most new employees of the Commonwealth’s 105 retirement systems from retiring under age 60 and sets age 67 for them to receive full retirement benefits, with a prohibitive reduction for each year under that age.

Although recent changes in our pension law had closed almost all loopholes in our state’s pension plan, including earlier disability reform and elimination of legislators’ perks, constant pressure from critics of the state’s $18 billion unfunded liability confirmed to the Governor that total reform was needed.

Shortly after the Governor filed the reform bill purported to save $5 billion before Year 2040, the state’s new full funding benchmark, the bond credit-rating firms Standard and Poor’s, Moody’s and Fitch met with state fiscal leaders and upgraded (or maintained) the Commonwealth’s bond rating to AA+, thus saving the state millions on bond sales. Ironically, the new bond rating is the same as the federal government’s, which had been reduced down from AAA this past August by Standard and Poor’s.

Patrick said after a signing ceremony in his office that the new law will help to end pension abuses that “set everyone’s teeth on edge, including my own.” State Treasurer Steve Grossman said the state’s willingness to tackle the pension system helped to improve the state’s bond rating and lower borrowing costs.

The Governor’s statement was a reflection of the public perception of our retirement system. After years of trashing our plan by the media and taxpayer groups, such as the Mass. Taxpayers Foundation, the same government that failed to meet its total obligation to the pension fund over the past 40 years, buckled under the pressure. The vote for the bill’s passage was unanimous in the House and 27-10 in the Senate.

“It was a tsunami,” said Association President Ralph White. “The buildup over the past 10 months to pass this legislation overwhelmed our friends in the Legislature.
“Even our successful COLA amendment, raising the base from $12,000 to $13,000, will cost $2 billion, claimed one Boston daily on the day of the signing.  This is the same paper that told taxpayers the Legislature could have done better. The criticism was relentless.”

While public officials are reluctant to say otherwise, at least one is willing to cast doubt on the cost savings of the bill. “Over the next 10 to 12 years there’s no reduction of the current outstanding pension liability at all,” says Plymouth County Treasurer Tom O’Brien. “All it does is only potentially reduce a future liability, assuming a rate of hire that may not materialize.” O’Brien, chairman of the Plymouth County Retirement Board and a former State Representative, says he knows of no one who has seen the hard data on which the bill’s savings are assumed.

Why Concern?

While there are those who questioned why we, as an Association representing retirees, would be concerned about a change in the formula that doesn’t affect current employees or retirees, the answer was someone has to look out for future retirees who were being unjustly targeted.

“These are our children and grandchildren,” said White. “They are being asked to pay for current debt – debt of a system that was manageable. We agreed with later age requirements, as well as a reasonable reduction for early retirement, and offered amendments. Many legislators agreed that the bill went too far and attempted to include these amendments. A few (amendments) did make it and for those we are thankful.

“Also, we thank the unions that stayed with us in our combined efforts to compromise a more reasonable formula that they could support, and of course, the Mass. Association of Contributory Retirement Systems, and its President Denis Devine, which verified that  the unfunded pension liability in the cities and town were largely governments’ failure to meet their obligations to their pension funds.”