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Patrick proposal would reshape public pensions

Workers remain longer, pay more into fund

CLOSING LOOPHOLES Under Governor Patrick’s plan, elected officials would not be allowed to draw a pension while on the public payroll. CLOSING LOOPHOLES
Under Governor Patrick’s plan, elected officials would not be allowed to draw a pension while on the public payroll.
By Michael Levenson
Globe Staff / January 19, 2011

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Nearly all future state and municipal employees would work five years longer, contribute more to their pensions, and have their benefits slashed if they retire early under a bill Governor Deval Patrick and legislative leaders unveiled yesterday.

Eighteen months after state leaders eliminated loopholes in the pension system, the new proposal would go beyond merely curbing abuses. It would, Patrick said, fundamentally change retirement benefits for thousands of future teachers, police officers, firefighters, and other public workers, in an attempt to save $5 billion over the next 30 years.

Many states, including Massachusetts, confront escalating pension costs, a major burden on their budgets. Massachusetts, which has a relatively stable pension system, is nonetheless facing $20 billion in unfunded costs that will eventually have to be absorbed by taxpayers.

Because most of the proposed changes would apply only to future hires, however, it would take decades for the state to realize major savings.

The proposal comes at a time of rising anger at public employee benefits, as workers in the private sector have seen their own benefits and wages cut in recent years. It could trigger a struggle on Beacon Hill because public employee unions have traditionally fought attempts to curtail their members’ benefits. Most unions, however, reacted cautiously yesterday.

Under Patrick’s plan, which he unveiled with House Speaker Robert A. DeLeo and Senate President Therese Murray, the minimum retirement age for almost all state and local workers, including elected officials, would be raised from 55 to 60. Public safety workers, including correction officers and firefighters, will still be able to retire earlier than other employees, though their minimum retirement age will still increase by five years.

In addition, most public employees would not be eligible to collect their maximum benefit until age 67, up from the current age of 65. That would match a federal change that requires people born after 1959 to wait until they turn 67 to receive their full Social Security benefits.

Patrick’s plan would eliminate incentives for state workers to retire early, by reducing their benefits if they do so. For all workers, pension benefits would be calculated based on their highest earnings over a five-year period, instead of three years.

Under the plan, most workers would pay enough into their pension account during their working years to cover an average 94 percent of the amount eventually paid out to them when they retire. That is up from the current 84 percent. The increase stems from the fact they would be working five years longer.

There is a sweetener to help those workers: Their take-home pay would rise slightly, because the amount they pay into their pensions every year would be trimmed from 9 percent of their annual salary to 8.5 percent.

To help close a projected $1.5 billion budget gap the state is facing this summer, Patrick’s plan would give Massachusetts until 2040, instead of 2025, to pay off its long-term pension debt. Delaying that day of reckoning by 15 years will allow the state to avoid a $1 billion payment to the pension system that would have come due in July, Patrick said.

Despite pushing the pension debt further into the future, the plan as a whole would strengthen a system that has been hobbled by “a series of loopholes and avoided decisions’’ that date back decades, Patrick said. “Without these reforms, it is not sustainable,’’ he said at a press conference outside his office.

DeLeo joined in emphasizing the urgent need for change, saying public pension systems across the country are collectively facing a $2 trillion deficit. “The time for action now is greater than it has ever been,’’ he said.

Murray also voiced her support. “We have to take these additional steps to strengthen and maintain the system for the benefit of all public employees,’’ she said. “They are tough choices, but they’re necessary.’’

Michael J. Widmer — president of the Massachusetts Taxpayers Foundation, a business-backed budget watchdog group — praised the plan for going further than the pension overhaul the governor signed in 2009 and an unsuccessful proposal he unveiled last year.

“Unlike the 2009 and 2010 legislation, which simply closed longstanding loopholes, these proposals offer a more comprehensive reform of the pension system which strengthens its long-term financing while preserving a generous retirement program for state and municipal employees,’’ Widmer said in a written statement.

Union leaders, some of whom had discussed the plan with Patrick, said they were relieved that the proposal targets future workers, not those currently in the system.

“Anything that keeps pensions solvent is a good step forward,’’ said David J. Holway, president of the National Association of Government Employees. “As long as people who enter employment understand what the benefits are and they’re not changed, that’s a good thing. When people get hired, the deal is the deal.’’

Holway said his one initial concern is that forcing employees to work longer and pay more for their pensions will make it difficult to attract “career employees.’’

Paul Toner, president of the Massachusetts Teachers Association, echoed Holway, saying, “I’m glad he’s maintaining the benefit levels and not making any changes to the current situation for current employees.’’

The governor’s plan, in addition to changing future employee benefits, would immediately close what he said were several loopholes. One of them, which he labeled “double-dipping,’’ allows elected officials to draw a pension from a previous job while receiving a public salary. Another, known as “spiking,’’ involves employees nearing retirement who are suddenly given a new job title with a dramatic boost in salary. Under Patrick’s plan, they would have to prove that their promotions were warranted.

Patrick’s plan would also require retirees convicted of a crime related to their employment to repay benefits received since the date of the offense, instead of the date of their conviction. That change would apply to former House speaker Salvatore F. DiMasi, who receives a $5,000 monthly pension, if he is convicted of corruption charges.

The proposal would prevent employees from receiving a windfall if they jump into a more lucrative pension classification at the end of their career, by requiring that their retirement benefits be based on their entire tenure in public service.

Michael Levenson can be reached at mlevenson@globe.com.