A cure for extravagant pensions

WHEN WILLIAM BULGER sought to get a housing allowance counted as pay for the purpose of calculating his retirement benefits, the former University of Massachusetts president insisted that the legal fight was "a matter of principle." Maybe so, but the money worked out well for him, too. A Supreme Judicial Court ruling in Bulger's favor bumped his pension up from $179,000 a year to $197,000 and set off a flurry of efforts by other college presidents and legislators to get their perks counted in their pensions.

For the sake of fiscal responsibility -- and to avoid a popular revolt -- lawmakers need to clarify a legal ambiguity that led to the high court's decision. Under current law, state employees pay 5 to 9 percent of their income to the retirement system, which invests the money and pays out pensions based on each retiree's pay. State Treasurer Timothy Cahill is promoting legislation that would calculate pensions strictly on salary, not on extras. This would close the loophole and help push agencies to compensate employees in a straightforward fashion.

Republicans in the Legislature have introduced legislation that would go a step further. Filed by Senate minority leader Richard Tisei, the bill would limit the maximum payout to four times the average public worker pension, of about $23,000. A pension of $92,000 a year is ample compensation for a life of service, even if, as with public employees, the pension is in lieu of Social Security.

In theory, all employees are merely getting what they pay into the system, plus interest and investment gains compounded year after year. In practice, Bulger's retirement payments will likely outstrip -- by far -- a fair return on his contributions.

This points to a larger problem with public employee pensions. According to Cahill's office, there's enough money available to pay for 81.5 percent of what the state owes to present and future retirees. Massachusetts is in better shape than many other states, but at $3.8 billion, the Commonwealth's unfunded liability remains daunting. Still, Tisei's bill wouldn't much affect that.

The bill may not stand much of a chance, because unions are wary of measures that scale back retirement benefits for any group of public employees. In this case, though, the solidarity is misplaced. Government employees get generous pensions because their salaries are relatively meager. But Tisei's cap would clip the wings of only the most highly compensated. Bulger will receive more in each year of his retirement than some government workers earn in half a decade of toil.

Public employees deserve reasonable pensions, but inflated pension payouts do nothing to promote public support for the system. Closing loopholes and avoiding blockbuster pensions in the future is the least that the Legislature can do.