In case members missed it, Healey has decided to make her proposal for “Pension Reform” a primary issue in her campaign to be the next Massachusetts governor. Throughout the summer, she campaigned across the state spreading a false message of pending doom regarding our current retirement system.

Under Healey’s plan, all newly hired public employees would be enrolled in the DC plan instead of the current DB plan. However, all current public employees and retirees would remain enrolled in the current DB plan.

By Healey’s logic, the Commonwealth would be able to significantly reduce its annual pension appropriation under this scheme. Furthermore, it would be the new employees, not the government, who would be on the hook for the assumed risk of the investments.

Under the current DB system, retirees are guaranteed a certain benefit, regardless of the investment performance of the system. With a DC plan, the retirement benefit depends entirely on the success of the investments. If the investments do poorly, then the pension benefit is reduced.

Healey is far off the mark with her main premise – that the conversion to a DC plan would save the Commonwealth and the municipalities money. Studies and analysis by the pension community prove the case to be just the opposite. The conversion to a DC plan will in fact cost the state money.

The current $13.3 billion unfunded liability is a holdover from the days as a pay-as-you-go system, when the state was not paying its share into the pension fund. Moreover, the $13.3 billion liability cannot be reduced by benefit cuts or plan alterations.

Nearly two-thirds of the $1.25 billion the Commonwealth appropriated to the pension system for FY07 goes towards paying off the unfunded pension liability left over from the days when the state was not properly funding its pension system. It was not until 1984 that the state finally created the Pension Reserves Investment Trust (PRIT) fund to manage the state and teachers pension assets. It was not until 1988 that monies began to be set aside, according to a schedule, that would fully fund the Commonwealth’s share of its pension obligations.

Last year, active teachers and state employees contributed over $873 million towards the cost of their future retirement. At the same time, the Commonwealth contributed $231 million for its share of the benefits. By all accounts, current active employees are self-funding the majority of their retirement benefit.

Group 1 employees hired after July 1, 1995, who contribute 9% on the first $30,000 of their salary and 11% on the remainder, are fully funding their entire pensions without any contribution from the taxpayers.

The new hires that Healey would place in a DC plan are not costing the Commonwealth one red cent under the current DB plan. That being the case, what is the real emphasis behind this scheme? Signs point to the larger national agenda being put forth by financial service firms, which run the DC plans and profit by investing the assets. These corporations have been actively promoting this same agenda in California, Alaska, Florida, and several other states.

By exploiting reports of alleged pension abuse and scandal, Healey has created a straw man argument to advance her own agenda at the expense of not only public retirees and employees, but also the very taxpayers from whom she seeks support.

Doing away with our defined benefit plan could also open the door to mandatory Social Security coverage for our public employees, which would cost the state and municipal governments some $3 billion over ten years. The sole reason Massachusetts has avoided Social Security coverage is because our excellent defined benefit plan predates Social Security.

Our Massachusetts public retirement systems are well run, provide an excellent benefit and are on the road towards paying off longstanding unfunded liabilities. There is always room for improvement and the Association has a long history of working with Republicans and Democrats alike to find common ground.
Healey’s rhetoric shamefully politicizes the issue and demonizes hardworking public employees for the sole purpose of personal political gain. Having come from a working class background in Daytona Beach, Florida and being the daughter of a retired public school teacher, we expect better from Lt. Governor Healey.