CLT
UPDATE
Friday, September 19, 2003
7th highest state pension debt
with MTF's help aiming for #1?
The average state worker in Massachusetts retires with a pension of about $19,000 a year, but for many retirement means far more generous benefits, thanks to rules that work in favor of those with political connections....
Lesser known officials with the right connections can also use the formula to cash in.
Barbara Anderson of Citizens for Limited Taxation said it happens all the time.
"The politically connected are put into high-paying, useless jobs just to get their three highest years so they can get a high pension," she said. "Huge pensions have no relationship to the work they actually did." ...
"It's a system you only find in the public sector," Anderson said....
Whether they are being rewarded for their political connections or their tenure in an obscure state job, Massachusetts retirees also enjoy a number of perks not offered by private industry or by many other states, such as health insurance coverage and exemption from the state income tax - which in Massachusetts is at 5.3 percent....
For some, like Anderson, change can't come soon enough.
"The whole purpose of state government is pensions," she said. "You get yourself vested, you get your high-paying job for three years, and that's the motivation. You wait for the day you can leave and move to Florida."
The Salem News
Tuesday, September 16, 2003
Special deals fatten pensions
for some in state government
Allowing perfectly healthy individuals to retire at 45 or 50 years of age and paying them 80 percent of their salary for the rest of their lives does not come without a significant cost.
This year the state will pay out some $1.5 billion to 85,000 retirees. The cost of paying those pensions, combined with the decline in the value of the fund's investments, has created an estimated $12.5 billion gap between the amount the state has on hand to pay retirees and the amount it potentially owes. And barring another, 1990s-style stock market surge - viewed as unlikely in most quarters - the difference will have to be made up at some point, either in the form of higher taxes or decreased state and local services.
A Salem News editorial
Thursday, September 18, 2003
Pension system costs us plenty
Part 1 of the Salem
News pension fund series
Chip Ford's CLT
Commentary
On Monday I included the Salem News' breaking
investigative report, "The
pension fund nightmare." It brought to our attention that
Massachusetts government, in it's usual generosity to government itself,
has the seventh-highest pension liability in the nation and, along with
its overly generous Medicaid policies, is steadily heading in the
direction to bankrupt taxpayers.
I pointed out that -- once again -- the so-called
Massachusetts Taxpayers Foundation has accepted this inevitability and is
using it to again suggest that higher taxes are the solution, once again
providing the rationale and political cover to further burden average
taxpayers.
CLT warned as early as May 28, 1998
-- five years ago -- of this looming crisis. Two years later, in
Barbara's column in June of 2000, "Legislature's Payoff to Teachers Union for Fighting Tax Rollback,"
she wrote:
The Legislature, still in debt to or in fear of the MTA but concerned about the teacher shortage, has added a provision that lets the retired teachers return to the classroom after two years of retirement, there to collect their regular pay as well as their tax-free pension. This now falls into the category of a VERY big favor.
Voters, most of whom cannot retire after 30 years with up to 80 percent pensions, nor return to their jobs in two years and collect both pay and pension, are expected
to let legislators get away with this taxpayer-funded gift to the teachers union lobby. To facilitate getting away with it, legislators passed the bill on a voice vote.
CLT worked for four years to finally roll back the
"temporary" 1989 income tax hike that coming November, to cut
the flow of excess revenue that was feeding the growing inevitable
crisis. Meanwhile, the so-called Massachusetts Taxpayers Foundation was ambivalent
to the tax reduction while, as usual, impotently decrying the problem.
In it's "report" of January 19, 1999, MTF stated:
The cost pressures from the budget busters-employee health insurance, Medicaid, debt service, the
MBTA, and pensions -- and the appetite for new spending are both evident in this year's $19.9 billion state budget. In an apples-to-apples comparison, the 1999 budget is almost $1.2 billion above the initial 1998 budget, a 6.4 percent increase ...
A further MTF report, on June 28, 1999 stated:
In a very troubling development, a new program of early retirement incentives for teachers has been adopted in both versions of the 2000 budget, with an estimated $60 million annual cost beginning in 2001. On top of that expensive change, the Public Service Committee has just approved an even more generous early retirement package for all state employees.
Prior to these changes, the pension system for state employees and teachers was the only one of the five "budget buster" programs of the 1980s not facing renewed cost pressures. Through a combination of financial discipline and strong stock market performance that has built up the value of retirement reserves, the Commonwealth has made dramatic strides in reducing its huge unfunded pension liability while adhering to a manageable schedule of annual pension contributions.
The recent actions to expand benefits threaten to put a serious dent in that progress and, in the case of the early retirement incentives for teachers, come at a time when schools across the state are trying to retain quality teachers.
How "responsible" of MTF to define the
problem while rejecting viable solutions. The question is, why does the
so-called Massachusetts Taxpayers Foundation incessantly advocate
further feeding the government beast on the shoulders of average
taxpayers? Why is this consistent MTF flim-flam given credibility when
it does nothing but contribute to the fiscal problems, enable
tax-and-spenders, make the situation worse?
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Chip
Ford |
The Salem News
Tuesday, September 16, 2003
Special deals fatten pensions for some in state government
By Bill Kirk, Staff writer
The average state worker in Massachusetts retires with a pension of about $19,000 a year, but for many retirement means far more generous benefits, thanks to rules that work in favor of those with political connections.
William M. Bulger is only the latest example of the phenomenon. For most of his career, the former state legislator and University of Massachusetts president earned less than $100,000 a year. A formula that bases pensions on the average of an employee's three highest earning years guarantees that Bulger's pension will be at least twice that.
But there are other ways for the politically connected to cash in.
A 2002 report by Commonwealth magazine, run by the Massachusetts Institute for a New Commonwealth
(MassINC), highlighted one special retirement deal that has helped a number of former legislators and political appointees take early retirement and begin collecting pensions even as they go on to other jobs.
A little known rule - Section 10 of the retirement law - allows some state workers to collect pensions after 20 years of service, even if they haven't reached 55, the age at which public servants become eligible for some retirement benefits.
The law grants the benefits to those who are fired or whose positions are eliminated. Lawmakers who are not re-elected also qualify if they have 20 years in state government.
The report by Commonwealth found 1,100 early pensions approved under Section 10 since 1990.
Many were for political appointees who applied for retirement shortly after they reached the 20-year mark, claiming they had been fired or their jobs had been trimmed. The timing of the applications raises questions about the validity of those claims, according to the report.
Republican activist Susan Costello rose from a job in the welfare department to assistant secretary for administration and finance when William F. Weld became governor in 1991. Five years later, two days after reaching 20 years, she applied for early retirement based on a letter from another Weld official saying her position had been eliminated. She was approved for a $28,814 pension. She was 42.
Some of the lawmakers who have benefited from this provision include former Lynn state representative Timothy Bassett and former House Majority Leader Richard
Voke.
Bassett was replaced as head of the Massachusetts Land Bank in 1995, with $212,000 in severance, and began collecting a pension of $38,419 a year at age 47. Voke left the House and began collecting a pension of $25,672 per year at age 50.
Former Republican governor Paul Cellucci began collecting an early pension of $42,573 a year when he resigned to become ambassador to Canada.
Although Cellucci was just 53 and had only 25 years of state service, the law allowed him to count the six years he served as a part-time selectman in his hometown of Hudson, a job that paid him a maximum of $1,500 per year.
Cellucci was taking advantage of the same income averaging formula that has favored
Bulger.
Lesser known officials with the right connections can also use the formula to cash in.
Barbara Anderson of Citizens for Limited Taxation said it happens all the time.
"The politically connected are put into high-paying, useless jobs just to get their three highest years so they can get a high pension," she said. "Huge pensions have no relationship to the work they actually did."
Gov. Mitt Romney, who has called Bulger's pension an "abuse of the system," himself came under fire recently after he made it possible for longtime Belmont Selectman William Monahan to dramatically boost his pension.
Romney named Monahan to an $80,000-a-year job as head of the Civil Service Commission. Under the state's pension rules, Monahan could become eligible for a $64,000-a-year pension if he stays three years. Based solely on his selectmen's pay, his pension would be $4,600.
All state workers are eligible for a pension worth 80 percent of the average of their three highest-paid years once they reach age 65 and have put in 32 years. It doesn't matter whether their final salary was artificially inflated.
"It's a system you only find in the public sector," Anderson said.
Bulger, 69, was a state representative and senator for 35 years before serving as UMass president for seven. His top salary as a legislator was $81,410 a year, when he was Senate president. His salary as UMass president rose to $309,000.
Since stepping down, Bulger has maneuvered for an even bigger pension. He has asked that his annuity and housing allowance, totalling around $50,000, be added to his salary in the pension calculations.
If the request is approved by the state retirement board when it meets next month, Bulger will increase his annual pension from about $200,000 to $230,000. His pension could have been closer to $300,000 except that he opted for a plan under which he will receive 60 percent of his pay, instead of 80 percent, so that his wife can receive a portion of his pension after his death.
Dr. Arthur Pappas, former chairman of the Department of Orthopedics at the University of Massachusetts Medical School and retired medical director of the Boston Red Sox, is currently the state's highest paid pensioner. He receives $230,558 a year from the state.
No other retiree receives more than $200,000. About 30 of the 85,000 state retirees make more than $100,000 a year, according to the state treasurer's office. Another 1,700 retirees, or 2 percent of the total, receive more than $50,000 a year.
The average retiree's pension of $19,000 a year, though far less, is still in the top third of pensions for public employees nationally.
Calls for reform
Whether they are being rewarded for their political connections or their tenure in an obscure state job, Massachusetts retirees also enjoy a number of perks not offered by private industry or by many other states, such as health insurance coverage and exemption from the state income tax - which in Massachusetts is at 5.3 percent. In Bulger's case, the state tax exemption is worth about $10,000 a year.
Massachusetts public employees are at a disadvantage in a few respects - including the length of time it takes to fully vest in the system. In Massachusetts, it's 10 years, compared to five years for federal workers and workers in about half the states.
Harriett M. Stanley, D-West Newbury, a longtime critic of pension abuses, said the great majority of people collecting state pensions earned them by working at relatively low-paying jobs for years.
"It's a contract between state government and the people who spent many years working for the state," she said. "These were not the high-paying jobs. They earned their pensions and are entitled to them. The people who get hurt are not people like
Bulger, but teachers who spent many years in the classroom."
But the woes of the state's debt-ridden pension system and the outrage over inflated pensions for high-ranking officials are fueling new calls for reform.
Romney earlier this year suggested changing to a "defined contribution" system, with individual retirement accounts for state workers, like the 401(k) plans of the private sector
With pension costs rising as retirees live longer, the private sector has long since begun switching to defined contribution systems, under which companies' contributions to pension funds are guaranteed, but not the payouts to retirees, as they are in "defined benefit" plans.
Ron Snell, director of the economic and fiscal division of the National Conference of State Legislatures, said only two states, Michigan and Nebraska, have 401(k)-style systems exclusively for their retirees. A number of other states, including Florida, Montana, North Dakota, South Carolina, West Virginia and Washington, offer a 401(k) option.
"They looked attractive in the 1990s when the stock market was going up fast," said Snell. "But with the crash, they are less attractive. In this investment climate, it's difficult to convince policymakers or participants there's an advantage to a defined contribution plan."
Romney's proposal went nowhere, but his administration is now working on a new pension reform plan. He has already vowed to file a bill to block Bulger's bid to boost his pension by counting his annuity and housing allowance. He has also suggested a cap on the amount future retirees can collect.
The governor said he is also eyeing changes to the rule that gives inflated pensions to retirees "based on a few years of high income after many years of more normal income."
Senate President Robert E. Travaglini, a Democrat, joined the Republican governor's call for reform last week, saying that Bulger's pension "hit a nerve" with the public, most of whom cannot count on retiring at a fixed percentage of their pay.
For some, like Anderson, change can't come soon enough.
"The whole purpose of state government is pensions," she said. "You get yourself vested, you get your high-paying job for three years, and that's the motivation. You wait for the day you can leave and move to Florida."
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The Salem News
Tuesday, September 16, 2003
Calculating a pension
A state employee's retirement allowance is based on the following calculation: the average of his three highest years of salary, multiplied by the number of years of service, multiplied by the pension rate, which is based on age at retirement and group classification.
For example, a retiree who is 55 years old with 15 1/2 years as an employee and a three-year high salary average of $24,333 would calculate his pension this way: 15.5 x $24,333 x .015 (preset pension rate established by the state) = $5,657 a year, or a monthly benefit of $471.
A number of other variables can affect the equation. Veterans, for example, get more than non-veterans. Cost of living adjustments, usually around 3 percent on the first $12,000 of a person's pension payment, are approved by the Legislature every year.
Spouses of retirees receive benefits after the retiree's death, although the amount changes depending on the agreement the employee had with the retirement system. There are three options for survivor benefits, but the bottom line is that the more an employee pays into the system, the more the survivor makes.
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The Salem News
Thursday, September 18, 2003
Editorial
Pension system costs us plenty
To hear some elected officials and union honchos tell it, those early outs for teachers, police officers, firefighters and other public-sector employees don't cost anyone anything.
In fact, as a series by Statehouse reporter Bill Kirk made clear this week, the overly generous pension benefits accorded city, town and state employees are costing us plenty. So much, in fact, that Michael Widmer of the Massachusetts Taxpayers Foundation says it's now the state's biggest budget-buster after Medicaid.
And if the looming deficit in the state's pension fund is keeping House Speaker Thomas Finneran awake at night, the average citizen might want to pay attention to the problem as well.
Allowing perfectly healthy individuals to retire at 45 or 50 years of age and paying them 80 percent of their salary for the rest of their lives does not come without a significant cost.
This year the state will pay out some $1.5 billion to 85,000 retirees. The cost of paying those pensions, combined with the decline in the value of the fund's investments, has created an estimated $12.5 billion gap between the amount the state has on hand to pay retirees and the amount it potentially owes. And barring another, 1990s-style stock market surge - viewed as unlikely in most quarters - the difference will have to be made up at some point, either in the form of higher taxes or decreased state and local services.
State Rep. Harriett Stanley, D-West Newbury, a former member of the House Ways & Means Committee, puts the problem in simple terms: "We are bringing more people onto the system and giving more benefits without increasing the amount of money going into the system."
And yet mayors, selectmen and state legislators continue to endorse those early retirement incentives that allow employees with many years of productive service left in them to begin collecting their pensions at a relatively young age and - in many cases - go to work for someone else.
To date, much of the attention has been focused on the lucrative deals negotiated by high-profile public servants like former Senator and UMass President William
Bulger.
No question, the six-figure golden parachute the disgraced Bulger received - and which he is now trying to augment by getting his housing allowance and annuity included in the calculations - is outrageous. So, too, is the practice of giving former legislators and others with political clout a three-year sinecure at a grossly inflated salary in order to boost their final payout; which is based not on average salary but on their three highest-paid years.
But in the final analysis, the cost to the taxpayers pales in comparison with what will be paid out to those at the lower rungs of the pay scale for the 10, 20, even 40 years they will be collecting pensions as a result of being allowed to retire early.
These incentive programs - three have been approved by the Legislature over the past three years - are being sold as a way to reduce the amount the state and municipalities must pay in salaries. It helps in those cases where the employees are not replaced, but it ought not be sold as a cost-free solution.
Gov. Mitt Romney has made pension reform one of his priorities, and we were heartened to hear that Senate President Robert Travaglini, D-East Boston, has joined the chorus calling for changes in the current system.
At a minimum, public employees, whose unions over the years have won them salaries commensurate with those in the private sector, should also be subject to the kind of defined contribution (as opposed to defined benefit) pension plans increasingly prevalent in private industry, and required to pay the same kind of taxes on their retirement income everyone else does.
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