MAY 2001 - Wants Another Blue-Ribbon Study - Our old friends at the Massachusetts Municipal Association are at it again. This time they come as white knights reputedly to save our Chapter 32 retirement plan from its “serious flaws” by filing a broad-based bill (H2067), which will address the ills of our pension systems, but would also delay all pending legislation, including COLA improvements.A March 8 seminar at Stonehill College, sponsored by the MMA, was the first unveiling of the MMA’s legislation, which will be heard in Gardner Auditorium at the State House this May 24.

MMA: A Look At Their Record

We would remind members that this is the same MMA that sat on its hands for nine years, never lifting a finger while we struggled to obtain three COLAs during that period, the same MMA that made every attempt to kill our legislation in 1997 that finally once again provided annual COLA increases.

Bob Drew, chairman of the Natick Retirement Board, was criticized by municipal officials for attacking the 1997 Coopers and Lybrand report which the MMA used in trying to kill local government COLA legislation. Drew was also president of the Mass Association of Contributory Retirement Systems at the time.

“The report was sent to all municipal officials who then began to lobby against the COLA,” said Drew. “I sent my own letter out to local retirement boards blasting the Coopers report and in turn was criticized by municipal managers. When it comes to pension COLAs I don’t trust the MMA or their motives.”

Lest we forget, the MMA prophecies of doom for local retirees were strictly bogus. After a monumental clash at the State House between our Association and the MMA, the good guys won. S1748 was voted into law as Chapter 17 and local retirees are receiving COLAs each year. There is no two-tiered COLA system. Both the state, teachers and local retirement systems are well able to pay annual COLAs.

Now, as we attempt to improve on this law by moving to a higher base, the MMA says wait, we want to study the entire retirement law and nothing moves until we complete this study.

“I’m not attacking the MMA as an institution. They do a lot of good work for their members who are mayors, city and town managers and finance officers. The health insurance pool (MIAA) that they sponsor for cities and towns deserves praise,” White conceded. “But I have no faith or trust in the MMA when it comes to Chapter 32, public retirement. I can’t recall one single bill they’ve sponsored on behalf of employees or retirees. They’ve always opposed any pension legislation that would add even the smallest of costs to the cities and towns. If anyone believes that H2067 means that the MMA has changed, they’re naive. We simply don’t want the future of our COLA in the hands of the MMA.”

Let’s Take A Look Back At 1997 When S1748, Our COLA Bill, Was On The Line: Letter from Jeff Beckwith, MMA Executive Director, April 22, 1999 Dear Speaker Finneran, I am writing to tell you of the MMA’s opposition to S1748, An Act to Provide a Cost-Of-Living-Adjustment for State and Municipal Retirees... MMA Legislative Bulletin, April 29, 1997 ...new information from Coopers and Lybrand indicates that the cost of accepting this new system could be so high that very few local retirement systems could reasonably accept the new COLA... local retirees would become second class citizens... MMA Board of Directors Memo, May 2, 1997 KEY ISSUES TO RAISE WITH LT. GOVERNOR CELLUCCI * Cities and towns cannot afford the exorbitant costs of S1748 and therefore will not accept its terms which will result in a two-tiered system of retirees: state and teacher retirees receiving COLAs and municipal retirees living on a fixed income...

DB vs DC: A Comparison

Most of our members are familiar with our contributory retirement plan whereby the employee makes a contribution based on a percent of salary. His money, plus money that is appropriated by the state or local government and all the other employee contributions, are invested in various markets. The employee’s pension is calculated based on a specific formula which includes salary, years of service and age. It is a fixed, guaranteed pension which, plus COLAs, will be paid even if a retiree’s contributions and earnings have been exhausted. This is known as a defined benefit (DB) plan.

On the other hand, a defined contribution (DC) plan allows the employee to make the same contribution that he would make under a DB plan except that the employee manages his individual account and makes his own choice of investments. There is no guaranteed pension, but rather the amount the employee receives during his retirement is based on the growth and value of the employee’s retirement investment portfolio. Under a DC plan, the employer may make a contribution. In the case of the state’s higher education program it is 5%, out of which the state deducts disability/life insurance premiums and an administrative fee. The state’s plan is managed by Peter Tsaffaras, higher education’s deputy director of human resources.

A DC plan allows the short-term (and not career) employee the flexibility of transferring to other employment, especially in the private sector, without any interruption in his plan. Under our DB plan, he would have to withdraw his funds with either no or low-interest credit.
The DC plan can be less costly to the government. There is no liability to the employer after the employee retires and therefore, no need for a funding schedule to pay for past or future costs.