"Romney's pension ""reform"" proposal"
Romney administration officials are saying a "reform" of the teacher and state employee pension system will be the subject of legislation to be filed by the governor sometime this spring. Broad outlines of that plan have been reported in the press recently.
[Ed. note: The March 14 Boston Globe reports conflicting adminstration statements on when the proposal will be introduced, with some indicating that the proposal may be put off until next year.]
As best we can determine, the Romney plan consists of the following components:
- The current system, in which guaranteed retirement benefits are based on salary and years of service, would be replaced by a 401(k) style plan where one's retirement benefits would depend entirely on the earnings of one's contributions.
- The new plan would apply to the teachers and state employees who have not vested in the current system i.e. new hires and those with less than 10 years of creditable service. Teachers and state employees who have at least ten years of creditable service would not be affected.
- The new plan is silent on whether the state or local school committees would be obliged to provide some kind of "employer match" which is common in the private sector.
The main reason Romney is proposing this change is to cut back on the state's obligation to guarantee certain pension levels and transfer any risk in pension investment returns from the employer to the employee in an effort to save the state money.
Undoubtedly, some would benefit from this proposal when they make wise investments and one retires when the stock market is strong. Also, these employee-only contribution plans would be portable to other jobs.
Many employees may have concerns about subjecting their main pensions to the vagaries of the stock market.
Private sector employees, therefore, have the security of knowing that their Social Security benefits are guaranteed and they are permitted to contribute additional money to 401(k) type plans to augment their guaranteed Social Security pension. Massachusetts's public employees, under the Romney plan, would have their pensions (now guaranteed like Social Security) subject entirely to the vagaries of their investment choices.
Retirement planners, except those willing to take additional risks, generally advise that the type of pension plan currently in effect for MTA members (and known as a "defined benefit" plan) is much preferable to those plans left to the instability of the stock market (and known as a "defined contribution" plan.)
MTA awaits details of the Romney plan and his proposals will be discussed depth by MTA elected leaders and staff. MTA will also confer with other public sector unions affected.