Due to intense pressure from city retirees, organized labor and political leaders, the city's five-member retirement board voted just one month later to pay the full 3% COLA. Under the earlier approved 1.4% COLA, retirees and survivors would have received a maximum increase of $168 a year or $14 a month, instead of the $360 a year they will now receive.

At the June meeting, only the Board's two elected members, Ray McGrath and Betsy Early, voted for the full 3% COLA. The Board's three appointed members, James DelSignore, Steve Wentzell, and Thomas Wade voted against the 3%, instead opting for the smaller 1.4% COLA.

"One of the driving forces behind the passage of Chapter 17 was the need to provide local retirees with the security of an annual COLA. With the money to pay for the 3% COLA having been built into the funding schedule, this really should no longer be an issue of debate," said Association President Ralph White. "I am very pleased that the Worcester Retirement Board reversed their earlier decision and went with the full 3%. It was the right thing to do for the retirees and survivors."

When the five member Worcester Retirement Board met on June 19 to initially vote on the COLA, they were faced by a large turnout of retirees, political leaders, union officials and representatives of our Association.

With over 70 retirees looking on, Worcester Mayor Tim Murray, Association Legislative Liaison Shawn Duhamel, former Senator and Association VP Dan Foley, and Worcester Retired Fire and Police President Peter O'Rourke each made an impassioned plea for the Board to grant the full 3% COLA.

The Association sent representatives to the meeting in response to inaccurate arguments against granting the full COLA, put forth by some Worcester officials, including City Auditor and Retirement Board Chairman James DelSignore. These officials had made the statement that the city's financial problems prevented the full 3% COLA from being paid, which ignores the facts on how retirement systems set up their pension funding schedules.

"Like every other retirement system, Worcester has the 3% COLA built right into their pension funding schedule. In other words, the COLA is funded right along with the rest of the pension benefits," explains Duhamel. "To act as if the money for the COLA is coming directly out of the city budget is not correct."

At the close of the June meeting, DelSignore promised that the Board would revisit the COLA issue at a later meeting and examine granting the full 3% increase at that time, which they did do.

Back in 1998, Worcester seemed to be on the cutting-edge of pension funding when they received legislative approval to issue $220 million worth of pension obligation bonds to pay off the unfunded liability that the city owed to the retirement system.

The concept behind the bonds is simple. The city borrowed money (issued bonds) to pay off its debt to the pension system. If the interest paid on the bonds is less than the interest earned on the pension investments, then the city saves money.

Some five years after the issuance of the bonds, Worcester's much celebrated success has slid into financial turmoil. Losses in the stock market have reduced the retirement system's funding status from a high of 103% on 1/1/99, down to 77.4% as of 1/1/03.

The huge loss in pension assets has forced the retirement system to once again adopt a pension-funding schedule to pay off the newly created unfunded liability. As a result, the city's appropriation to the pension system increased over $5 million for FY04. Instead of only making a normal cost payment to the retirement system of approximately $8 million, the city must pay $18.9 million instead ($1.26 million is from last year's ERI).

Not only is the city responsible for paying down the new unfunded liability, but it is also on the hook to Wall Street to pay the debt service on the bonds, which is roughly $16.5 million for FY04. This brings the total appropriation for the pension fund and the POBs to $35.4 million.

Several local communities have filed legislation to authorize the issuance of POBs. So far the Joint Committee on Public Service has taken a cautious approach to the bills, as the outcome in Worcester is being reviewed.