Governor Patrick Steps Up on Pensions

Governor Patrick, flanked by Senate President Murray and House Speaker Deleo, introduced a new package of pension reform yesterday, taking aim at some abuses but more importantly introducing systemic change that has the potential to save real money over the long haul. From the State House News Service:

The governor’s proposal would increase the minimum state retirement age for roughly 90 percent of state workers to 60, from 55, and require that employees work two more years until they reach age 67 to receive the maximum pension benefit. Police, firefighters and some corrections officers would also be required to stay on the job five more years until age 50, and would not become eligible for the maximum pension until age 57.

The legislation would expand the timeframe used to calculate a retiree’s pension to an average of the highest five years’ salary as opposed to the current three-year average, and eliminate the incentive baked into the current system that encourages early retirement by providing less of a benefit for additional years of service than for added years of collecting a pension…. The bill includes an anti-spiking clause limiting the annual increase in pensionable earnings to 7 percent – except in cases of “bona fide promotions” or job changes – and eliminates the loophole exposed by the late-Sheriff James DiPaola that allows elected officials to collect both a salary and a pension if they had retired before seeking office.

The Governor estimated the unfunded liability of the system to be $20 billion dollars. This package will deliver a $5 billion dollar savings to the pension system over the long haul. The Governor coupled this announcement with the news that he will be seeking to extend the full funding schedule of the State pension system from 2025 to 2040, averting a roughly $1 billion dollar increase payable by the state into the pension system in his soon to be unveiled budget for FY12. Even with the schedule change the Commonwealth will still need to increase pension payments by $36 million.

Mass Taxpayers Foundation Mike Widmer praised the proposal:

Massachusetts Taxpayers Association President Michael Widmer said the proposal would bring state and municipal retirement benefits more closely in line with those provided through Social Security.

“Unlike the 2009 and 2010 legislation which simply closed longstanding loopholes, these proposals offer a more comprehensive reform of the pension system which strengthens its long-term financing while preserving a generous retirement program for state and municipal employees,” Widmer said.

I will have Widmer on the Mayor’s Corner TV show this week, and we will talk about this as well as other state budget issues.

The Governor has coupled a schedule extension with meaningful reform to move the system forward. While he will be subject to criticism for the extension I believe he had no real choice but to make that call. Municipal systems have done the same thing, and while it certainly is true that in a perfect world you would not do that, the choices are between bad and worse. The State simply does not have an extra $1 billion hanging around to pay into the pension system. The Governor’s reform package is real, and will produce substantial savings if passed as described. He has taken strong steps to help right a foundering system, and he deserves major credit for doing so, and not just kicking the can down the road. Two things of note in the Governor’s remarks. He continues to support the “defined benefit” pensions enjoyed by state and municipal employees. And he described that system, under the current rules, as “unsustainable”.

The Governor, in his new term, seems to me to be relaxed and prepared to act like a true CEO. He has taken strong action since the election, on pensions and in other areas, and really looks to me like he is hitting his stride in his job. He has been dealt a difficult hand on pensions, which he is dealing with in a forceful way that is also inclusive. I think that on pensions the Governor made the correct call on both reform and schedule extension, and even Republicans should give him some credit for being willing to introduce real change in difficult political circumstances.

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