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Leominster Retirement Board hit over pension-hike denial
LEOMINSTER -- A statewide association representing retired municipal employees is criticizing the city's Retirement Board for voting in July not to give retirees a cost-of-living pay increase in their pensions for the fifth straight year.
"We think it's unconscionable that our local retirees haven't received a (cost-of-living increase) which they need," Shawn Duhamel, the legislative liaison for the Retired State, County and Municipal Employees Association of Massachusetts, said Wednesday. "They are largely reliant on their pension as their sole income, so not having a cost-of-living increase for five years really hurts retirees, and we think it's unnecessary."
Out of 105 retirement systems in the state, Leominster is the only community to deny a cost of living increase in recent years, according to the association's monthly newsletter. Somerville is the only other community to miss a cost of living increase dating to 1998.
Mayor Dean Mazzarella defended the retirement board's decision not to increase benefits while it works to reinvest and fully fund its post employment financial requirements.
The association is afraid other communities will begin mimicking Leominster's financial plan, Mazzarella said.
"They are trying to look out for their retirees, and they are saying we are doing too good a job and don't want (other communities) to follow," Mazzarella said.
Leominster's retirement board lowered its projected rate of return on investments from 6.5 percent to an artificially low 5.5 percent compared to most public retirement systems in the state, which are anywhere from 7.5 to 8 percent, Duhamel said.
Leominster's investments earned 21.82 percent return in 2013 and over five years has returned a 13.31 percent return, according to the association. The rate of return has been 8.83 percent over the last years.
If the retirement board maintained projects of 6.5 percent rate of return based on 2013 earnings the city's post employment benefits obligation would be fully funded, Duhamel said.
If it went with a 7.75 or 8 percent rate of return, then obligations would be nearly fully funded, he said.
Leominster should be proud of its long success, which is outperforming almost all others in the state, but instead of sharing the wealth with retirees is taking a different approach, Duhamel said.
The retirement board's projection of lower returns puts a bigger burden on taxpayers to fund the program, Duhamel said.
The board's rate of return on investments should justify a cost-of-living increase, said at-large City Councilor Bob Salvatelli.
"With that kind of impressive return we're making off this thing, and not giving retirees a 3 percent raise, is criminal," Salvatelli said. "It's not even funny; it's criminal."
Salvatelli's wife, Linda, is in the retirement system, but he insisted he isn't advocating on her behalf because he has a separate retirement plan that helps support the couple.
Many of the retirees are elderly and may not live long enough to see another cost-of-living increase, Salvatelli said.
In comparison, the city used Proposition 2 1/2 to raise an additional $1.5 million this year, and about $1.2 million is being used to fund well-deserved pay raises for active workers, said Salvatelli, who chairs the Finance Committee.
Giving retirees a 3 percent pay increase would cost an additional $145,000 and fully funding those increases over the lives of retirees would cost about $900,000, Salvatelli said, citing figures Comptroller John Richard gave him a few years ago.
Mazzarella denied taxpayers must cover annual difference between returns on investment and retirement benefits. The city budget and retirement system are separate.
"I don't know where they come up with that," he said.
Communities are beginning to realize that expecting a 7 or 8 percent rates of return on investments are too high, Mazzarella said.
Other retirement systems are paying increases to retirement benefits with money they don't have, he said.
"They are kicking the can down the road," Mazzarella said.
He'd support pay increases to longtime retirees who receive only about $15,000 from the system annually if a system could be developed, but other retirees who can make up to $80,000 annually have already voiced objection to that, he said.
Mazzarella denied the association's claim that he that he control's the board's voting.
The association is also worried that Leominster doesn't appear to be planning for future cost-of-living increases for retirees, Duhamel said.