PAX Centurion - Summer 2014

www.bppa.org PAX CENTURION • Summer 2014 • Page 23 HEARD ON THE HILL By James Barry, BPPA Legislative Agent Some good news in both pensions and budgets R ight now the good news is 2014 tax collections are running over estimates by $520 million and this year’s House and Senate budgets are heading to conference committee to work out the differences on the 2015 proposed $36.20 billion annual budget. The best part for the City of Boston is the increased fund- ing levels for education and local aid next year. This factor will help relieve some pressure on Boston’s budget. Proposals also increase investments of $140 million in transportation. But most importantly for our members is $163 million to help reduce the state’s unfunded public pension liability. This pension funding is long overdue and a very positive sign of the legislature is not “kicking the can down the road” for fully funding the system. Now currently on schedule to be fully funded by 2036.   The Boston Globe just released a front page report from the Urban Institute. Not surprisingly the Globe is also kicking the crap out of the pension system in their editorials. This report and the editorials “conclude” that Massachusetts to have the worst state- administered plans in the country, in terms of the benefits pro- vided to employees and the funding of the plans by taxpayers. The report is wrong on so many levels and fails to take into account so many factors that make it one of the best-run systems inAmerica. Many other reports show our public pension system to be one of the best, if not the best in the country. Recently tightened and reformed, the system now is working on fully funding itself. The front page critical report does showMassachusetts stand- ing out in one dimension among state-administered plans. It ties with Colorado for having the cheapest retirement system in the country. Many factors can help explain why it is so cheap. Number one is Massachusetts public employees are not covered by Social Se- curity. Some $707M in state taxpayer money was saved in 2012, because the Social Security FICA assessments were not charged to the Commonwealth. Which means the state does not pay the 6.2% tax of payrolls to Social Security. This fact is huge, but totally overlooked or understated by the study or editorial. Massachusetts public em- ployees pay a much higher percentage of normal costs than most other public employees. The past 17 years, Massachusetts public employees have contributed at a rate that is considered one of the highest in the country – 9% on the first $30,000 and 11% on ad- ditional compensation (some employees pay even higher).  Official state and private actuarial studies have confirmed that today’s Massachusetts public employees largely fund all of their future retirement benefit. The bottom line is that, while taxpayers in other states are pay- ing an average of 14.2% of payroll (6.2% for Social Security and 8% public pension costs), taxpayers in Massachusetts are paying less than 3% of payroll for public-employee retirement benefits. In terms of the costs of the benefits, the Massachusetts plans serve the taxpayer very well. There are some public retirement systems that have collapsed or are in crisis (Miami, Detroit and Central Falls). We should all realize these as exceptional cases and they have real systemic problems. The differences when comparing them to our public pension systems here is night and day.  For instance in Central Falls, benefits to police and fire were awarded full pension with 20 years of service. Massachusetts police and firefighters must contribute for a minimum of 32 years and reach the age of 55 before achieving the maximum pension benefit of 80%. And all other public employees must have the same total service upon 65 years of age. Our lower rating by the Urban Institute also looked at Mas- sachusetts plans do not serve public employees as well as plans in other states. Citing Massachusetts on benefits for young and short-term workers because of ten-year vesting and high em- ployee contribution requirements. They say we are not “portable.” Which I guess means you work in Massachusetts for five years and then go toAlabama you should be able to take your pension with you. Public service in Massachusetts is a career. Turning from benefits to funding, Massachusetts received a “D” in terms of its funding and an “F” in terms of making required contribu- tions. Massachusetts only started funding its pension obligation in the early 1980s. So the state has entered this century with a substantial unfunded liability. But actions appear to recognize this and the State is acting on getting the system funded.