Debate Over Alternative Retirement Plan Continues

SEPTEMBER 2000 - With
state and local officials claiming they are having difficulty filling
key jobs because of the current pension contribution rate and lack of
portability, a defined contribution (DC) plan such as that offered to
faculty members of the Commonwealth's higher education system,
continues to be a front-burner issue within the Massachusetts public
pension community.

Critics
of our Chapter 32 defined benefit plan point out that a new employee
contributes 9% of the first $30,000 of salary and 9% plus 2% for all
salary over $30,000. If the employee resigns within five years, he
receives a refund of his contributions, but forfeits any accrued
interest. If he resigns before 10 years, he receives his contributions
and one-half of the accrued interest. There is no provision to transfer
these assets to private employer plans, such as a 401(k) or a public
sector plan in another state.

In 1994, newly enacted legislation established an optional retirement
plan, a DC plan which is known as the optional retirement plan (ORP)
for newly hired college presidents, chancellors and faculty in the
Mass. higher education system, as well as for similarly-positioned
employees with less than 10 years of service at the time.

The ORP, which was described in detail in our July 2000 Voice,
currently has 2,000 participants. The plan is administered by Peter
Tsaffaras, the Board of Education's deputy director of human resources.

According
to Tsaffaras, there are 47 states that have a similar plan, meaning
that members of the plan can transfer to another state and retain their
benefits. Massachusetts enacted the plan at the urging of the Mass.
Teachers' Association so that our state's higher education system could
attract educators from outside of Massachusetts who would otherwise be
reluctant to transfer.

Studied by PERAC

At a recent meeting of the Commonwealth's Public Employee Retirement
Administration Commission (PERAC), DC plans were the topic of a lengthy
discussion. Deputy Director Joe Martin reviewed the DC plan recently
instituted in the state of Florida. PERAC Commissioners, in general,
agreed that the DC option should be looked at carefully. Commissioner
Ken Donnelly, a Lexington firefighter and labor appointee to the
Commission, said that public safety employees are usually career
employees and are best served by our Chapter 32 defined benefit plan.
He did acknowledge, however, that DC plans should be studied by the
Commissioners, if for no other reason than to enhance their knowledge.

Gene Durgin, chairman of the Mass. Professional Pension Forum (MPPF),
an organization of pension fund managers, consultants and attorneys,
told the Commissioners that the MPPF would be conducting a statewide
symposium this November. The forum will bring together administrators
of our retirement systems and others involved in the public pension
field for the purpose of reviewing all aspects of the Commonwealth's
pension law. He said that defined contribution plans would be one of
the topics.

Worcester
County Treasurer Mike Donoghue says that he has been approached by
local government officials and appointed employees in his area that
have asked if there was an alternative to our current retirement plan.

In a letter to his retirement board members and PERAC, Donoghue said in
part, "I bring this to your attention due to the fact that I have
received a number of inquiries from appointed public employees who
serve at the will of local government. Their concern is that they may
never reach the point when they will be vested in a public retirement
system due to the fact that their job is on a contract basis. A number
of these individuals have come from the private sector or, in some
cases, come from out of state where they held a prior public position.
I can fully understand where they are coming from and how it relates to
their future retirement. On the other hand, we must be very careful
that we do not jeopardize our public retirement system by opting to run
public retirement systems or plans in such a way as to jeopardize the
financial health of our plan. This issue has been discussed in the past
but certainly not on a regular basis as it has been brought to my
attention in the past few months."

In a discussion with our Association Donoghue said, "The issue that
faces many of us who are administrators of a public retirement system
is the fact that public employees are looking for something other than
what is being offered by local government units." He pointed out that
it is important we understand that many states are going through a
complete review of their pension plans being offered to employees.

Association
President Ralph White reiterated his position of total support for our
current Chapter 32 defined benefit plan which he extolled in our July
2000 Voice. "However, I realize that we can't ignore the call for DC
plans for certain personnel," he said. "I agree that we must stay alert
and educated on the issue of other plans. But retirement board members
must realize that if another plan is offered, just as employees of
higher education belonging to the alternative plan are no longer
members of the state retirement system, employees opting for another
plan would no longer be members of their respective retirement systems.
Is there room for an alternative plan without weakening our current
contributory systems? Perhaps in a narrow sense... but very narrow."

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