Despite Pension Funds' Setback

MAY 2009 VOICE: Despite suffering huge pension fund losses as a result of the 2008 market meltdown, members of the Commonwealth’s 104 local retirement boards expressed faith that the market would recover by voting three percent July COLAs for their retirees.

With nearly three months remaining until July, 74 boards have voted for 3% COLAs and we have complete confidence that the remainder will do so prior to that date. The state and teacher retirees 3% COLAs were included in the Governor’s budget which will be confirmed when the House and Senate enact the FY’10 State Budget despite a 29% pension fund loss in ’08.

Almost all of the retirement systems lost at least twenty-five percent of their funds’ value last year and another five or six percent loss the first two months of this year. However, beginning in March, the federal stimulus package began to have its intended effect, and there is daylight ahead.

Legislature to Address Key Proposals

Hampered by current law, which requires all retirement systems to recover their losses by Year 2028, while maintaining their average annual investment earnings schedule of 8.0 to 8.5 percent, there are two proposals before the Legislature.

One, filed by our Association, and a companion bill filed by the Mass. Association of Contributory Retirement Systems (MACRS), would allow retirement boards to extend their funding schedules beyond 2028, and thus take the pressure off that deadline, which is a deterrent to annual COLAs, and a higher COLA base, especially in the event of a further market decline.

The second proposal, filed by State Senator Ken Donnelly (D-Arlington), would allow cities, towns and counties to decrease the scheduled annual appropriations to their retirement systems, with the approval of the respective retirement boards, over the next three years. This same bill has also been filed by Governor Deval Patrick as part of his community partnership legislative package.

The effect of this legislation would be to immediately free up money for cities and towns that are now looking at a budget deficit that will most certainly require layoffs of essential employees and a cutback of services.
In other words, the current recession is so severe that a bailout by their retirement systems, with no danger to pensions, could be an immediate savior to cities and towns. It would be up to the individual retirement boards to make this decision – a very difficult decision.

“Our Association will support the action that any retirement board decides to take, provided that they will continue to vote for an annual COLA,” says Association President Ralph White. “The one-year loss of a COLA – which unlike retroactive pay raises – is lost forever. And this also applies to state and teachers’ COLAs, in the event the Legislature ever looks toward pension funds as a budget bailout.”

Update: Joining GIC

Efforts are also underway to modify the governor’s controversial proposal on municipalities joining the state GIC (Group Insurance Commission). See March ‘09 Voice for more details. Under the governor’s proposal, retirees have no effective role.

Our Association has been working with others so that retirees have a say. Essentially these efforts would require that any final decision on joining the GIC would continue to be made through the coalition bargaining law (Chapter 32B, Section 19).