Here is a synopsis of proposals made this past week by Governor Deval Patrick that are bing presented as pension reform:
Over the past two weeks, the Governor has submitted three legislative initiatives addressing (1) an extension of the retirement funding schedule, (2) an early retirement incentive for municipal employees, and (3) a comprehensive reformation of the public pension plan.
1. Extension of the Funding Schedule. This bill would extend the date for a retirement system to be fully funded to no later than June 30, 2040. There are a number of conditions that a retirement system must satisfy in order to extend the funding schedule, including an actuarial valuation that incorporates 2008 investment losses. The Board has requested its actuary to commence a valuation of the system as of January 1, 2010. A copy of the bill, H. 4439, along with the Governor’s accompanying letter, is attached. A hearing before the Joint Committee on Public Service has been scheduled tentatively for February 8, 2010 at 10:00 a.m.
2. Municipal Early Retirement Incentive. This proposal is one of several that the governor has submitted to the Joint Committee on Municipalities and Regional Government as it develops a second municipal relief package (Municipal Partnership II). The bill would allow local systems to grant an additional three years to age, creditable service or a combination of both. An employee must have at least 20 years of service in order to participate in the ERI. The decision to adopt the ERI is solely that of the municipality’s chief executive officer. A copy of the legislation (no bill number has been assigned) containing the ERI proposal (on page 3) is attached.
3. Public Pension Reform Phase II. H. 4440 is a comprehensive reform of the public pension system which incorporates many of the ideas presented to the legislature by the Special Commission on Pension Reform. Most, but not all, of the provisions would to members hired after July 1, 2010. In summary, these reforms include: capping pensions, raising full retirement age in each group by 2 years, and increasing the three year average to five years for pension calculation.
In addition, the legislation would eliminate termination retirement allowances, increase the age reduction factor for each retirement age, earlier than full retirement age (i.e., Group 1: Age 67) from 0.1% to 0.125%, and reduce the pension contribution rate for Group 1 employees to 8.5%.
The provisions which would apply to current members and to new hires include the prorating pension benefits according to years of service in each group, and the capping of salary increases in any year, within the five year proposed average for pension calculations, to 7% of the average salary for the preceding 2 years. The bill also includes a provision relative to health insurance which proposes a “charge-back” among municipalities for the cost of health insurance where a retiree has service in more than one municipality.
