The Battle to Curb Public Pensions

It’s one step forward, two steps back in the battle to bring pensions and other public-employee retirement benefits under control in Massachusetts. Beginning in January, MBTA retirees under 65 will contribute 15% toward the cost of their health insurance. Most T employees can retire with generous benefits after 23 years. Until now, those benefits included free health care for life. Not a bad deal, especially when you can retire in your 40s.

Phasing in a plan that would have provided incentives for recent and soon-to-be retirees to choose less expensive health insurance, as proposed by a panel charged with assessing state transportation finances, would have been fairer to those nearing the 23-year mark, saved more money, and avoided a potential spate of retirements at the T. Still, treating younger MBTA retirees the same as retired state employees is a step in the right direction.

But while most state workers pay around 10% of their salaries toward retirement, T employees still pay just 4%. Unlike state employee contributions — which are set by law — MBTA pension contributions are subject to collective bargaining.

At least the MBTA pension situation isn’t getting any worse. An amendment adopted during the state House of Representatives budget debate and included in the Senate’s recent budget proposal increases from $12,000 to $16,000 the amount upon which cost-of-living increases are calculated for teacher and other state retiree pensions. Earlier this month, busloads of retired teachers descended on the State House to lobby for pending legislation that would guarantee future escalation by linking the base amount to the consumer price index.

The change would raise the average pension just $120 for the coming year. But compounded annually, the move could end up costing taxpayers more than $8 billion.

Next year, taxpayers will pay almost $1.5 billion out of a likely $28 billion budget to retire the Commonwealth’s more than $13 billion unfunded pension liability. Hiking retirement benefits would extend the time at which state pension obligations will be fully funded from 2023 to 2026.

State Treasurer Tim Cahill warns against extending the date, saying it could hurt the Commonwealth’s bond rating. The higher interest costs that would result are no small matter, given that $16 billion in new borrowing has either recently been approved or appears headed toward approval.

Payments to retire the liability are set to increase each year, reaching more than $2.8 billion in 2023. That means three additional years would cost taxpayers more than $8 billion. Keeping to the current schedule would result in the annual sum rising even higher than $2.8 billion by 2023.

Part of the problem with the Commonwealth’s pension system is that it’s just too easy to push the burden out to future generations. Three early-retirement programs earlier this decade saved money in the short term, but added nearly $2 billion to overall liability.

Reining in pensions is not about shortchanging public employees. For years, the argument was that government workers got rich benefits to make up for lower pay. But according to the federal Bureau of Labor Statistics, public employees in Eastern Mass. now earn 15% more than their private-sector counterparts who perform comparable work, and that number is exclusive of more generous government benefit packages.

The new health care reform law is just one of the priorities Massachusetts is struggling to fund. If not for the nearly $1.5 billion taxpayers will have to put toward retiring unfunded pension liability next year, the Commonwealth could pay costs related to the law; eliminate the need to pull $400 million from the rainy day fund, as the state Senate did to balance its budget proposal; and still have money left over. That’s why we have to resist the pressure to add to already-staggering liabilities.-

Charles Chieppo is a senior fellow at the Pioneer Institute. This article first appeared in the Boston Globe.

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