Chapter 176 Marks Sweeping Change

NOVEMBER 21, 2011:  As expected, late last Friday, November 18, Governor Deval Patrick signed Pension Reform III into law as Chapter 176, Acts of 2011.

The measure, which had been enacted in the House and Senate three days earlier, creates a new retirement plan for new employees of our 105 retirement systems, hired on or after next April 2nd.

Earlier enacted legislation closed most loopholes in our current retirement law. But Phase III was considered to be the real pension reform that the critics of our state’s unfunded liability have been seeking for years.

Although the new law, Chapter 176, will not show any savings for at least 10 years, the savings on our unfunded pension liability will reportedly be over $5 billion by 2040, the new target year of the Commonwealth’s funding schedule.

Effective next April 2, all new hires within our state’s 105 retirement systems will find the door closed on early retirement before age 60. The law also requires most workers to stay in the system until age 67 in order to reach a full pension.

“While our Association had no problem with new hires working until a later age, we opposed the new age reduction formula imposed on employees who don’t or can’t work until age 67,” said Association President Ralph White. “The penalty for not staying until 67 is too severe – too punitive for 35 year employees, who want to retire in their early 60s, or, in some cases, are forced to retire."

White pointed out that Group 1 employees, with many years of service and are laid off, will have to wait until age 60 to collect their greatly reduced pension. "It will be les than they could have received under Social Security when eligible," he said.

Public safety employees (Group 4) will also have to work at least two years longer to achieve a maximum age 57 factor. This is not unreasonable, but because of the new reduction formula it is a concern for fire and police unions, where some employees, who begin service at a later age than say 28, would be forced into working into their 60s. A safety threat, so to speak.

While the new law, which was passed unanimously in the House and 27-10 in the Senate, does not affect current employees or retirees, it forces new hires to fund a system to which they will be paying for their own pensions according to several actuaries.

Retiree Benefits Approved

In signing Chapter 176 into law, Governor Patrick did not heed the calls of the Boston Herald and other critics that opposed the modest COLA base and minimum pension increases contained within the Act.

The new law increases the COLA base for eligible state & teacher retirees to $13,000 beginning in July 2012 – a move panned by critics as costing some $2 billion. As members know, local COLAs, including base amounts, are set by local retirement boards with the approval of local legislative bodies.

Minimum pension benefits of state and teacher retirees with at least 25-years service have been increased to $15,000. This provision is now a local option as well.

System Oversight

Another major feature of Chapter 176 is greater oversight of our 105 retirement boards and their investment managers by the Public Employee Retirement Administration Commission (PERAC).

A key provision within the governance reform sections of the bill is mandatory ongoing education for retirement board members – something PERAC had long been seeking. The Mass Association of Contributory Retirement Systems (MACRS), which consists of over 500 board members, has been working in conjunction with PERAC in setting up the program.