Brewer Leads Pension Reform Bill That Could Save MA $5 Billion

(BOSTON) – Senator Stephen M. Brewer (D-Barre) announced today that the Senate and House of Representatives have reached an agreement on a bill that will reform the current pension system to close loopholes; enhance the administration, efficiency, and transparency of retirement boards, and modernize benefits for future employees. The compromise plan is projected to save the Commonwealth $5 billion over 30 years.

“This is the third consecutive year the Senate has passed significant pension reforms.  We have addressed some very serious issues including anti-salary-spiking provisions and the elimination of a controversial early retirement loophole,” said Brewer, a member of the six member conference committee that worked out the differences between the House and Senate versions of the bill.  “The current system we have in place is outdated.  Life expectancy has gone up and these reforms are essential so that our pension system will remain a viable tool to preserve our fiscal resources for the next 30 years.”

Following the Senate’s passage of the Pension Reform Bill in September, Massachusetts received a credit upgrading from Standard & Poor’s, one of the nation’s top three bond rating agencies.  The state’s rating has been boosted from AA to AA+, the highest rating the state has ever received.  “We met with the bond rating agencies and listened to what they had to say,” Brewer continued.  “We have worked hard and we have a long list of accomplishments including pension reform that demonstrate our financial stability.”

Most changes in the bill will only affect future employees of the Commonwealth and contribution rates will not increase for current employees.  Additionally, retirees will receive a benefit enhancement through the Cost of Living Allowance (COLA) base increase from $12,000 to $13,000. COLA has not been increased in 13 years.  The reform also increases the retirement age to 60 for new employees only, moving the state system closer to the retirement ages already set by the federal government for Social Security benefits.

State employees will also see an increase in the minimum retirement benefit from $10,000 to $15,000 for employees who have spent 25 years in state government. 

Additionally, this bill will pro-rate the retirement allowance for employees who have served in more than one service Group by taking into account the number of years of service in each group.   This will prevent a situation where a person works the majority of his or her career in one group and transfers to a new position where retirement with full benefits may be at a younger age or higher pay.  This will prevent the unfair boosting of salaries before retirement to increase pension.  The pro-rated benefits will be based upon the period of service in each group.

The bill further prevents inappropriate salary spiking by increasing the career “look back” period from 3 years to 5 years to more accurately reflect an employee’s career earnings and provide a more equitable calculation of retirement benefits.  The bill also increases the early retirement discount factors which reduce the pension benefit for an employee that retires prior to the full retirement age.

The bill also expands on a reform passed by the legislature two years ago which eliminated the so-called “Section 10” loophole that allowed elected officials to claim a “termination allowance” based on the failure to be nominated or re-elected. The bill eliminates that option entirely for all new employees and states that a retirement benefit cannot be received until the individual has reached the minimum retirement age.

For long-term Group 1 employees and teachers who have worked for at least 30 years, the bill moderates the impact of reforms by easing contribution rates after 30 years of service, allowing long-serving members to retire earlier with full benefits and enhancing the Retirement Plus program for teachers. 

The bill also establishes a mandatory retirement age of 65 for the state police.  This is consistent with current mandatory retirement age for municipal police offers, firefighters, and correctional officers.

Massachusetts joins 39 other states that have made substantial changes to their retirement systems over the last 2 years.

###

Posted: Tue, Nov 15, 2011
Updated Tue, Nov 15, 2011