RELIEF FOR LOCAL RETIREMENT SYSTEMS

Association Supports Changes In Funding Schedules

JANUARY 22, 2009: At the core of any proposal for pension benefit improvements is its impact on the retirement system’s pension funding schedule. For the past 20 years, local retirement boards have been administering their systems in compliance with a pension funding schedule.

A schedule sets forth the amount to be paid into the retirement system each fiscal year in order to essentially pay off the past liabilities that accrued before the schedule was established. According to law (Chapter 32, Section 22D), these past liabilities must be paid off no later than 2028.

“When we propose a benefit improvement, for example raising the base on which COLAs (cost-of-living adjustments) are calculated from $12,000 to $16,000, the first thing, that we must consider, is its effect on the pension funding schedule,” states Association President Ralph White. “Today, local retirement boards are facing a crisis when it comes to meeting the fiscal demands that may be imposed upon them to compensate for the investment losses suffered last year and possibly this year.

“There’s no question that this crisis, among local systems, not only seriously blocks our efforts in the short term to improve pension benefits but also, and most importantly, has the potential of undermining the payment of new COLAs in the future. Local retirement systems need relief now, to adequately address the current situation and continue paying future COLAs.”

For these reasons, our Association is supporting proposed legislation that offer differing, but compatible, solutions to the fiscal stress on pension funding schedules that local retirement boards may be facing when they factor in the system’s recent investment losses.

 

“As we see it, some offer more long-range relief while others have a more immediate impact,” according to Association Legislative Chairman Bill Hill. “It’s this distinction in their proposed solutions that allows us to support them.”

First and foremost is the Association’s bill, introduced by Rep. David Flynn (D-Bridgewater), that would allow local retirement boards to extend the years under their schedules beyond the statutorily imposed deadline of 2028. “We crafted this more long-range bill so that local systems could absorb investments losses in ’08 and ’09 over a longer period of time in order to prevent huge increases in their current pension appropriations,” continued Hill. “They could only do this if PERAC (Public Employee Retirement Administration Commission) approves it.”

Our Association has also signed onto a bill, filed by the Massachusetts Association of Contributory Retirement Systems (MACRS). MACRS’ proposal is similar to ours in that it allows retirement boards to extend out the funding schedule beyond 2028.

Having more immediate impact is legislation introduced by Senator Ken Donnelly (D-Arlington) that allows local retirement systems to reduce their pension appropriations for the next 3 fiscal years beginning this July (Fiscal ’10). Under this bill, systems could reduce their appropriation for Fiscal ’10 to 90% of this year’s (Fiscal ’09) appropriation, to 95% in Fiscal ’11 and equal to this year’s appropriation in Fiscal ’12 (Beginning July 1, 2011).

 

“All of these proposals help local systems but come at it in different ways –by extending the funding schedules beyond 2028 or reducing the current pension appropriation,” comments Hill. “If enacted, systems may prefer to adopt one solution or both in order to solve their funding problems.”

 

THE FOLLOWING IS THE TEXT OF OUR ASSOCIATION’S PROPOSED LEGISLATION, AS FILED BY REPRESENTATIVE DAVID FLYNN:

 

RELATIVE TO RETIREMENT SYSTEM FUNDING SCHEDULES

 

Section 22D of said chapter 32, as appearing in the 2006 Official Edition, is amended by striking out in line 26 the number “102” and inserting in place thereof the following number: -103.

SECTION 2. Section 22D of said chapter 32, as so appearing, is further amended by inserting in line 29 after the word “approve” the following words: - provided further, however, that the board of any system, pursuant to the provisions of subdivision (12) of this section, may establish a funding schedule that is designed to reduce the unfunded actuarial liability of said system to zero as of such year, that may be subsequent to June 30, 2028, as approved by the commission.

 

SECTION 3. Section 22D of said chapter 32, as so appearing, is further amended by inserting at the end thereof the following new subdivision:-

(12) In the event that upon preparation of an actuarial valuation report pursuant to section 21, the retirement board of any system determines that as a result of the rates of investment return for calendar years 2008, 2009 or both, the system’s unfunded actuarial liability has been impacted such that appropriations, under the current funding schedule, will be substantially increased, the board may establish a funding schedule designed to reduce the unfunded actuarial liability of said system to zero as of such year that may be subsequent to June 30, 2028, as approved by the commission. Appropriations required by the funding schedule, established pursuant to this subdivision, and any updates of the schedule shall be no less than the appropriations required by the current funding schedule.

 

SECTION 4.             This act shall take effect upon its passage.

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