REVISED BENEFIT STRUCTURE FOR NEW HIRES

House Looks To Reward Career Employees At 30 Years

NOVEMBER 4, 2011: A key component of the Pension Reform bill (H3787), passed by the House this past week, is the creation of a new retirement formula for those employees hired on or after July 1, 2012. Like the Senate, the House has also increased the full retirement age by 2 years for each group (67/62/57).

However, unlike the proposal filed last winter by Governor Deval Patrick and that passed by the Senate in September (S2018) the House has set the minimum retirement age for Group 1 at 57 – rather than age 60. The House bill sets the minimum retirement age for Group 2 at 52 and 47 for Group 4.

It should be noted that the changes in retirement ages, formulas and calculations do not, in any way, affect retirees or employees hired prior to July 1, 2012.

Most dramatic is a change made to the age reduction formula, in which the factor used for those retiring before reach the full age for their group was increased from .10% to .15%. This increased factor marks a sharp reduction in the pension calculation for those retiring prior to reaching their maximum age.

In a move to encourage and reward long-term careers in public service, the House opted to reduce the age reduction formula to .125% for those retiring with more than 30 years of creditable service. The Senate’s S2018 made the same reduction at 35 years service.

Working with a wide coalition of public employee unions, the Association had proposed maintaining the age reduction factor at .1125% for those with more than 30 years service. However, House officials pointed to a report by the Patrick Administration placing the price of the proposal at $500 million. Similar attempts at amending the bill in the Senate to address the age reduction formula also fell short.

Beyond increasing the retirement age and altering the retirement formula for new employees, both the Senate and House bills increase the earnings calculation to an employee’s highest consecutive five-year average – rather than the 3-year average used for today’s employees.

Steps are also taken to prevent pension spiking from taking place, while still allowing for legitimate promotions, job changes and raises approved through a CBA.

“The focus, at every level of state government, has been set on the need to reduce the state’s pension liabilities by up to $6.4 billion over the next 30-years. Those parameters were set and agreed to by the Governor, Treasurer, Senate President and Speaker last winter when Governor Patrick first filed his bill,” explains Association President Ralph White. “Once Wall Street assumed that savings and tied it to the state’s bond rating we were stuck within the so-called savings “box”.

“It is certainly not fair that new employees are facing reduced benefits, while still paying 11% of their salaries into the pension system. We fought hard to change that, but in the end the future cost savings was a reality that we could not overcome. My hope is that this issue will be reexamined in the years to come, as our pension system continues to bounce back.”

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.

Please click here to read about retiree benefit enhancements contained with the House's Pension Reform proposal.

Commissions and Special Reports

Both bills also create a Special Commission on Group Classification, which will be assigned the task of reviewing and making recommendations to overhaul the system. Our Association has named to the Commission.

The Group Classification is one of just five different studies or reports that are mandated within the House bill. The other commissions/reports are as follows:

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.

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