Iliya Atanasov, Pioneer Institute, writes an opinion “Pension obligations need to be a priority” in the Boston Globe on April 28, 2014 (see attached). PERAC would like to pubically respond to his Opinion.
The Public Employee Retirement Administration Commission or PERAC was established by Chapter 306 of the Acts of 1996 and was created for and is dedicated to the oversight, guidance, monitoring, and regulation of the Massachusetts Public Pension Systems. The professional, prudent, and efficient administration of these systems is the public trust of PERAC and each of the 105 public pension systems for the mutual benefit of the public employees, public employers, and citizens of Massachusetts. The stewardship of the Trust Funds for the sole purpose of providing the benefits guaranteed to the public employees qualifying under the plans is the fulfillment of the obligation of the people of the Commonwealth to those who have dedicated their professional careers to the service of the people of the Commonwealth. A few of our major oversight responsibilities include the supervision of the state’s disability retirement system including fraud prevention, provide audit and actuarial functions, provide legal and investment advice as well as providing analysis on legislation impacting pension systems.
First, we are pleased that Mr. Atanasov acknowledges that the State’s share of pension funding has declined – while the employees’ share has risen. In plain language – this decline for the State means that taxpayers’ responsibility for state employees’ pensions has been reduced.
Massachusetts state employees since 1996 are paying 9% on the first $30,000 of salary and 11% on salary above $30,000. Indeed, in many instances, a Group 1 employee (administrative, clerical, etc.) hired after 1996 who spends his/her entire career in State service will more than pay for his/her own pension. This fact – largely unknown to Massachusetts’ citizenry – should be frequently referenced. In addition, public employees in Massachusetts are not eligible to participate in Social Security for their service as public employees – and many rely on their state pensions and private savings for their retirement.
Mr. Atanasov states that a significant unfunded pension liability exists. This is accurate – due in large part to the fact that in the years prior to the establishment of a funding schedule in 1988, the State was on a “pay-as-you go” basis for funding its pension system. Yet, he notes that “state leaders announced an accelerated funding schedule to eliminate the state’s pension liability by 2036…but this is the tip of the iceberg”. This is a mere passing acknowledgment of a significant achievement in enhancing pension funding nor does he mention the three other significant pension reform initiatives of Governor Patrick, the House, and the Senate over the past several years.
He also muddies the difference between pension funding and funding for Other Post Employment Benefits – or OPEB costs – such as retiree health care. That is the “tip of the iceberg” to which he refers but this distinction is obscured in the article. He is correct that funding of major OPEB liabilities is an important issue – but it does nothing to enhance the public debate by confusing the two.
We also take issue with Mr. Atanasov saying that “drastic measures…will become inevitable without meaningful reform”. Such measures are not “inevitable”. The State has undertaken three major pension reforms during an almost unparalleled stretch of economic hardship and distress while confronting numerous other critically important priorities. OPEB costs are a considerable concern. Yet, there is no reason to believe that the Commonwealth will fail to confront the challenges of OPEB funding in the future in the same manner as it has pension funding.
Joseph E. Connarton
Public Employee Retirement Administration Commission