SEPTEMBER 26, 2008: In light of the dire economic news coming from Washington and Wall Street over the past two weeks, the Association has received a number of calls, emails, and even visits to our Boston office from concerned retirees. Some have commented on their disgust at what is now occurring, but all have expressed a deep concern as to whether or not their pension is secure.
“To be clear, Massachusetts public pensions are perfectly safe and secure. Retirees have a contractual right to their pension benefit and it cannot be reduced or taken away,” said Association President Ralph White. “ Besides, our defined benefit system is designed to withstand the ups and downs of the global financial market. These are serious times for our country, but thankfully our pensions are not in jeopardy.”
Unlike defined contribution (DC) plans, such as 401k retirement accounts whereby employees make investment choices through mutual funds, Massachusetts public retirees and employees are enrolled in a defined benefit (DB) plan, in which asset allocation decisions are made by the retirement boards through a well diversified portfolio of investment managers.
Pension benefits under DB plans are based on one’s years of creditable service, age, and highest consecutive three-year regular compensation average. In contrast, DC plans depend entirely on the investment performance of one’s 401k or other retirement account, rising and falling with the market.
“Anyone with a little money in a 401k or other investment account knows that these are very tough times. Our retirement systems will most likely have negative returns this year, but it is just one bad year after six consecutive very good years of investment returns,” explained White. “It is OK to be upset by what is happening here with our country as a whole. Wall Street should be held accountable. Thankfully, there is no need to worry about our pensions.”