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City considers hike in retirees’ pensions

Trends in Mass., US are far apart

City Councilor Stephen J. Murphy says Boston can afford to give public worker retirees a $450 cost-of-living adjustment. City Councilor Stephen J. Murphy says Boston can afford to give public worker retirees a $450 cost-of-living adjustment.
By Andrew Ryan
Globe Staff / June 18, 2012
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As cities and states across the nation take aim at public employee pensions, Boston City Hall is engaged in a very different debate: how much to increase retirees’ checks.

Mayor Thomas M. Menino is proposing to boost the annual cost-of-living adjustment for most pensioners from $360 to $390, a $30 increase. City Council president Stephen J. Murphy is pushing for more, seeking a $90 increase over the current rate.

Other Massachusetts cities and towns have had similar debates. Last month in Brookline, voters rejected the advice of the Board of Selectmen and approved a pension increase akin to what Menino is proposing. In Hampden County last year, the retirement board that covers 18 towns enlarged the annual cost-of-living adjustment by $180.

In contrast, Maine lawmakers canceled all cost-of-living increases for three years for the roughly 37,000 beneficiaries in the state pension system. Last month, Chicago’s mayor, Rahm Emanuel, called for a pause on cost-of-living increases for a decade. Residents in San Diego voted overwhelmingly to eliminate pensions for newly hired city employees - except police officers - and institute a 401(k) program.

But Massachusetts county retirement boards covering almost 200 cities and towns have approved larger pension checks by increasing the yearly cost-of-living adjustments, according to Ralph White, president of Mass Retirees, which represents the Commonwealth’s retired public employees.

“At first blush, it does look opposite to the trend,’’ said Jean-Pierre Aubry, assistant director of state and local research at the Center for Retirement Research at Boston College. “But Massachusetts differs from these other plans.’’

Unlike 70 percent of public sector workers nationally, municipal retirees in Massachusetts are not eligible for Social Security, which increases to keep up with inflation, Aubry said. But historically in Massachusetts, only the first $12,000 of a pension has been eligible for cost-of-living adjustments. That cap has kept increases comparatively low. In recent years, the increase has been 3 percent of $12,000, which added $360 a year to most retirees’ checks.

Public employees in Massachusetts contribute a share of each paycheck to the pension system, with the workers who make more than $30,000 putting in 11 percent. That is a much larger share than in many other states, which may explain the decision by some Massachusetts pension systems to increase payouts.

“It seems counterintuitive when you look at our brothers and sisters across the country,’’ said Joseph E. Connarton, executive director of the Public Employee Retirement Administration Commission.

“But our brothers and sisters nationally are not on the same page because our contributions have been higher and more consistent,’’ he said.

State lawmakers passed a slew of changes in recent years designed to stop pension abuses by some retirees. The moves pushed the minimum retirement age for some workers from 55 to 60; decreased some benefits; and adjusted the formula for pension payouts by basing them on employees’ last five years instead of three years.

Crucially, the changes also allowed cities and towns to increase the base for cost-of-living adjustments.

“It’s actually bringing it closer in line with the rest of the nation,’’ Aubry said. “The existing [cost-of-living adjustment] was very meager compared to others.’’

But Samuel R. Tyler, president of the Boston Municipal Research Bureau, argues that it is “not fiscally prudent’’ for the city to promise to increase pensions in a fragile economy. Critics question whether pension funds can generate enough long-term revenue, plus there is the pressure of rising retiree health care costs.

“We’re looking at the bigger picture,’’ Tyler said.

The Boston Retirement Board voted, 4-1, last month to raise the base figure used to calculate annual increases, shifting it from $12,000 to $13,000. That means most retirees would see $390 a year more in their benefits checks, up from the current $360. The move still needs approval by the City Council, which is supposed to take up the issue Wednesday.

If that proposal is approved, it would cost $2.5 million next year, according to an analysis by the city’s actuary. That would grow to $21.4 million by 2025.

Murphy’s plan would boost the base rate for pension calculations to $15,000. That translates into a total cost-of-living adjustment of $450, a $90 increase over the current rate. That proposal would cost $7.3 million next year, according to the analysis. By 2025, the cost would mushroom to $63 million.

Murphy pointed out that Boston has weathered the fiscal crisis better than other large cities and is facing its first “breathing room budget’’ in several years.

“We could afford it,’’ Murphy said last week in an interview. “You have people that are retired that have gotten no or very little increase over a number of years. The longer they live, the closer they are getting to the poverty level.’’

The city has roughly 14,400 retirees with an average annual pension of roughly $33,000, according to the Boston Retirement Board. But as salaries have increased, so have pensions. A study by the Municipal Research Bureau found that for the 450 people who retired in 2009, the average pension was $49,480.

Many private companies now offer 401(k)s for retirement, which shift risk to employees, who can lose their investments when the economy falters. A pension system keeps the risk with the government, which is obligated to keep cutting checks for retirees and their beneficiaries.

“It’s guaranteed, irrespective of the city’s finances or market condition,’’ Tyler said.

Jim Durkin, spokesman for Council 93 of the American Federation of State, County, and Municipal Employees, rejected the suggestion that the city could not afford the $30 increase.

“This is not a budget buster by anyone’s standards,’’ said Durkin, whose union includes roughly 2,000 city workers. “It is an extra copay on somebody’s prescription drug plan. Thirty dollars is more of a gesture toward these retirees.

“It’s a positive and a well-deserved gesture,’’ Durkin said. “It’s recognition that they are not getting rich by any means on a public employee pension.’’

Andrew Ryan can be reached at acryan@globe.com. Follow him on Twitter @globeandrewryan.

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