Legislature approves bill to cut pensions for future employees

The Legislature approved a major pension overhaul on Nov. 15 that will reduce retirement benefits for public employees hired after April 2, 2012, by requiring them to work longer for their benefits, increasing the minimum retirement age and reducing annual pension benefits by about 3 percent.

Governor Deval Patrick has signed the bill into law.

The final bill did contain several amendments supported by the MTA, including allowing higher education members who participate in the Optional Retirement Program to transfer to the state retirement system, allowing creditable service for part-time release union representatives, reducing pension cuts for future long-serving public employees and increasing the base on which the annual cost-of-living-adjustment is calculated from $12,000 to $13,000.

MTA President Paul Toner said that good pension benefits are important for attracting and retaining high-quality education employees.

“We strongly opposed reducing pension benefits for future employees from the start,” Toner said. “Thousands of MTA members contacted their legislators, arguing that public employees in Massachusetts already pay the vast majority of the costs of their own pensions. We maintained that future employees should not be responsible for paying down an unfunded pension liability that was created by municipalities and the state, not by them.

“We lost those arguments,” he continued. “The recent volatility in the stock market and the weak economy persuaded legislators to limit the state’s exposure and costs by reducing future pension benefits.”
The pension bill is designed to save the state $5 billion over the next 30 years.

After the Senate approved the bill by a wide margin on Sept. 29, it became clear that the House was going to pass a similar measure. While continuing to oppose cuts in benefits for future members, the MTA also worked hard to win amendments that are important to certain current members and to long-serving future employees.

The bill reduces retirement benefits for future employees in several ways. It increases the minimum retirement age by five years, from 55 to 60, for teachers and other Group 1 employees, including MTA’s higher education members and education support professionals. The bill also changes the formula used for calculating benefits. As a result, most future MTA members will have to work about two years longer to receive benefits similar to what current employees will receive.
In addition, future pensions will be based on a five-year salary average rather than the current three-year average, typically reducing pensions by about 3 percent.

The Legislature agreed to amendments fought for by the MTA to reduce the impact on future employees with more than 30 years in the system. The formula changes will enable them to reach their maximum benefit levels earlier than employees with less than 30 years of service. In addition, the contribution rate for future Group 1 members will decrease after 30 years of service, from 11 percent to 8 percent for teachers and from 9 percent on the first $30,000 in income and 11 percent on the portion over $30,000 to a flat 6 percent for other future Group 1 employees.

The MTA fought hard for the ORP amendment. The ORP gives higher education members the option of participating in a defined contribution plan, similar to a 401(k) in the private sector, rather than in the state retirement system. Under the new bill, ORP participants will be able to transfer into the state retirement system and “buy back” prior public service.

The other significant win for the MTA was a no-cost amendment that will allow employers and unions to agree on part-time leave time for presidents and other union representatives without any loss of creditable service, provided they contribute into the retirement system at the same rate as other full-time district employees. Full-time release presidents already receive this benefit.

The bill contains other amendments that will benefit a small number of members, including revisions pertaining to creditable service for maternity leaves taken before 1975, an increase in the amount of salary a retiree can earn while collecting pension benefits and an increase in the minimum retirement benefit.