Also Offers Municipal Early Retirement Proposal

JANUARY 26, 2010: Governor Deval Patrick has proposed two separate pieces of legislation that impact local retirement systems - both are local option.

The first is a bill, filed by the governor, allows local systems that extend their pension funding schedule to 2040.  Extending the pension schedule is necessary to absorb the financial losses that occurred in 2008, without requiring an influx of new money from taxpayers. Currently, the law requires that local retirement systems must be fully funded no later than 2030.

There are a number of conditions that a system must satisfy in order to extend out their funding schedule, including a new actuarial valuation that incorporates 2008 investment losses. In addition, any extension must receive the approval of the Public Employee Retirement Administration Commission (PERAC), which is the state's public pension oversight agency.

"Relief is needed to help local retirement systems address the 2008 market losses in a responsible manner," said Association President Ralph White. "We've made terrific progress with funding our systems over the past twenty-plus years, but there is no escaping the damage done by Wall Street in 2008."

Limited ERI With No Vacation Buyback

The second proposal by the governor is language that he has submitted to the House Committee on Municipal and Regional Government for a municipal early retirement incentive (ERI). This is among a number of proposals that the governor has submitted to the Committee as it considers a second municipal relief package (Municipal Partnership II), which could be acted on in the House this winter.

As proposed, the bill would allow local systems to grant an additional three years to age, creditable service or a combination of both in calculating a pension. An employee must have at least 20 years of service in order to participate in the ERI. However, under the governor's proposal, employees opting for the ERI would not be allowed to cash in any unused vacation or sick time.

"Without allowing for the buyback of vacation and sick time (traditionally, most contracts allow for a sick time buyback of 20%) this is going to be a very tough sell at the local level," said Association Legislative Liaison Shawn Duhamel. Three years is not much time to really benefit most employees, especially when you factor in the loss of earned vacation and sick time."

Unlike previous ERIs, the governor's proposal has no direct role for the retirement board in the decision to adopt the ERI. The decision is triggered by a municipality's chief executive officer, with the funding for the early-out to be paid off over ten years, directly out of the community's general fund.