Middlesex County
Retirement System News
Newsletter for Retirees, Active Employees and their Families
VOLUME SIX, ISSUE ONE
•
SPRING 2011
Pension Reform Update
by Thomas F. Gibson, Chairman
IN THIS ISSUE:
1 ....Pension Reform Update
Board Votes to Increase
COLA Base and Benefits
2 ....Massachusetts Public
Pension System
3 ....Staff Spotlight
4 ....Legislative Corner
Retirement Centennial
5 ....Public Pension Normal Cost
vs. Social Security Costs
Social Security, Medicare
and You
6 ....Pension Talking Points
7 ....System Hosts
Compensation Session
As we have previously reported to our members, over the past two years
the Legislature has significantly reformed the public pension laws by
eliminating flaws which had allowed for abuse by a small number of
employees and elected officials. (Please view our prior newsletters at www.middlesexretirement.org.)
In the current legislative session, several bills have been submitted that would fundamentally
change the existing retirement benefit structure, some radically so. A substantive initiative,
House Bill 35, based upon the prior report of the Pension Reform Commission, has been
submitted by Governor Patrick.
Legislative leaders have also signaled general support for further reform initiatives which, in
most cases, would be applied prospectively to new public employees. Among others, the
Governor’s bill would:
• Increase the Minimum Age of Retirement from 55 to 60 for Group 1 Members
(General) and from 45 to 50 for Group 4 Employees (Public Safety)
(continued on Page 2)
8 ....We Salute Our Veterans
Middlesex County
Retirement System
25 Linnell Circle
P.O. Box 160
Billerica, MA 01865
Phone: (978) 439-3000
Toll free: (800) 258-3805
Fax: (978) 439-3050
Email:
[email protected]
Office Hours
Monday to Friday
7:30AM – 5:30PM
Board Votes to Increase COLA Base and Benefits for Surviving
Spouses of Disabled Employees
As part of pension reform, the Massachusetts Legislature empowered retirement boards to
increase the base amount of retirees’ annual cost-of living adjustments, in multiples of $1,000.
Retirement boards were also empowered to increase to $9,000 the annual amount paid to
surviving spouses of disabled employees who were unable to select a survivor option upon
retirement (i.e., those retiring for accidental disability prior to November of 1997).
Both local options required approval by the Retirement Board and the Board’s Advisory
Council. Last December, the Retirement Board and the Advisory Council unanimously voted
to raise the COLA base from $12,000 to $13,000 effective July 1, 2011, and to $14,000 effective
July 1, 2012. The Board and the Advisory Council also voted unanimously to increase the
disability survivor’s pension benefit to $9,000 as of January 1, 2011.
If you have questions about how the COLA increase or the disability survivor’s increase may
affect you, please contact us.
www.middlesexretirement.org
Middlesex County Retirement System News
(Pension Reform Update, continued from page 1)
• Increase the Maximum Benefit Age to 67 for Group 1
Employees and to 57 for Group 4 Employees
• Increase from Highest 3 Years to 5 Years the Average
Compensation for Retirement Calculations
• Prorate Benefits Based On Number of Years In Each Group
(Will Apply to Existing Members)
• Limit Annual Increases On Pensionable Compensation in
the 2 Years preceding retirement to 7%
• Eliminate Enhanced Termination Retirement Allowances
An extensive hearing on the Governor’s bill was conducted
by the Legislature’s Joint Committee on Public Service on
April 7, 2011. At press time, further action had yet to take
place. The Middlesex County Retirement Board will continue
to update our members on changes to their pension plan.
Want to learn more about House Bill 35?
Visit our web site,
www.middlesexretirement.org
to read the full text
• Reduce Contribution of Employees Impacted by the
Adjusted Retirement Age Factors
The Massachusetts Public Pension
System: A Good Deal for Taxpayers
by State Senator Ken Donnelly
We have all read news articles and editorials bemoaning
the state of the Massachusetts public pension system and
offering ideas about how to get out of the current pension
“mess.” Some have questioned, explicitly and implicitly,
whether our citizens deserve retirement security (an
argument I thought was settled in the 1930s). Critics of
the public pension system repeatedly assert that the system
is too costly, too generous, and places an undue burden
on taxpayers.
These assertions, however attractive in today’s political and
economic environment, are not based on facts.
2
Both the Massachusetts public pension system and the
federal Social Security system are contributory systems that
require shared contributions from both employees and
employers. Massachusetts public employers and employees
do not participate in the Social Security system. If they did,
both the governmental employer and the public employee
would be required to separately contribute 6.2% of the
employee’s salary. In fact, public employers in Massachusetts
contribute, on average, only 2.7% of salary to cover the cost
of retirement benefits earned each year, while the public
employees, on average, contribute 9.2%. In other words,
the government pays substantially less and the employees
pay substantially more than they would under Social Security.
Public employees hired after July 1, 1996 contribute nearly
11% of their salaries towards their pensions, which in most
cases fully covers the costs of future benefits, including
administration.
The Massachusetts public pension system is a good deal
for taxpayers.
So what’s the real problem facing the public pension system?
The current financial strain on the pension system is due
to years of underfunding by the state and its municipalities.
Until 1988, the state and municipalities paid only those
pensions due in a given year. That is, while public employees
VOLUME SIX, ISSUE ONE • SPRING 2011
made their required contributions to the retirement system,
the state and municipalities did not. This “pay-as-you-go”
system worked as long as the workforce was young and the
number of retirements remained low. By the mid-1980s,
however, the amount needed to fund the system when current
employees retired was $12 to $14 billion; money that had not
been set aside, and simply wasn’t there. In 1988, legislation
was passed to address the resulting “unfunded liability.”
A deadline of 2028 was set for fully funding the system,
employee contributions were increased again, and for the first
time, mandatory minimum payments from public employers
were required.
Like any retirement account, the money that employees
and employers pay into the pension system is invested. The
1988 law set an assumption that the investments would yield
an average of 8.25% interest over 40 years, with the understanding
that in some years returns would be higher, and in some years
lower. This might seem overly optimistic, especially after a year
like 2008. But the facts show that over the past 28 years, the
return on pension investments is averaging 9.25%, and that
includes the huge losses sustained in 2008. The State Pension
Fund has reported an investment return for 2010 of 13.6%.
Contributing to the burden on our pension system has been
the lack of planning for those years when the system experienced
returns below the assumption. Higher-than-average returns
should be invested back into the system to mitigate the effects
of years with lower returns (like saving for a rainy day). But in
the past, when the return was greater than 8.25%, the state
and many municipalities diverted the “extra” money toward
other government operations. The extra return was not put
back into the pension system as a cushion for years like 2008.
Diverting excess revenue during good years has resulted in the
state, and many municipalities, being behind schedule in
funding their pension systems by the lawful deadline.
Eliminating the current pension system will not address these
problems; the unfunded liability will still have to be paid off.
It is up to the Commonwealth and its cities and towns to
fulfill the funding obligation that has been put off for so
many years. Fulfilling this obligation, in conjunction with
the additional steps the Legislature is taking on pension reform,
will protect our employees, our taxpayers, and the pension
system. Employees’ pension benefits will continue to be
funded largely by employee contributions at almost no cost
to the public employers.
A version of this opinion editorial was submitted to area
newspapers. Senator Donnelly represents the 4th Middlesex
district, which includes the town of Arlington, and parts of
Billerica, Burlington, Lexington and Woburn.
Staff Spotlight
Chen-Ching Lee • Director of Administration and Finance
As the Director of Administration and Finance, Chen-Ching Lee is responsible for the
planning and oversight of the System’s financial operations. After working at the office
of the Middlesex County Treasurer for 8 years, Chen-Ching brought her accounting and
recordkeeping skills to the Retirement Office, where she has worked for the past 13 years.
Chen-Ching loves the challenges of her job and working with the other staff employees.
Raised and educated in Taiwan, Chen-Ching came to America in 1976, our Bicentennial Year.
In her leisure time, she enjoys gardening and reading.
Each issue we will highlight a member of the Middlesex County Retirement System staff.
www.middlesexretirement.org
3
Middlesex County Retirement System News
LEGISLATIVE CORNER:
State Representative Thomas Golden, Jr.
Representative Thomas A. Golden, Jr. currently serves as State Representative for the
16th Middlesex District which includes sections in Lowell and Chelmsford. Throughout
his career at the State House he has served on various committees such as Banks and
Banking, Community Development & Small Business, Election Laws, Energy, Healthcare,
Public Safety, Revenue, Steering, Policy & Scheduling and Chair of the House Committee
on Bills in the Third Reading. Since January he has served as Vice-Chair of Ethics and is
a committee member on House Ways & Means and Telecommunications, Utilities & Energy.
A lifelong resident of Lowell, Representative Golden has had the opportunity to work on
projects that have been significant in the revitalization of the Greater Lowell Area, as
well as to work with retirees and public sector employees.
“As a Representative, I see the challenging economic times that we all are facing. It is important
that we work together to keep those that are nearing retirement and those that have retired
current with information that will assist and protect their individual needs with their pension,
health insurance and social security,” Golden said.
“To say that the Middlesex County Retirement Board is a significant resource is an understatement. It is reassuring to know the
Middlesex County Retirement Board is always there if I have a question or to know they will reach out personally to help a
constituent trying to make the right choices that will impact their everyday life,” he continued.
Representative Golden resides in the Centralville section of Lowell with his wife, Joane, and their two daughters, Abigail and
Lillian. He is a graduate of UMASS Lowell where he received both his BS in Business Administration and MBA. In addition to
serving in the Legislature, he is a licensed realtor and auctioneer.
Contact State Representative Thomas Golden, Jr.:
State House, Room 527A
Boston, MA 02133
Office: 617-722-2020
Email: [email protected]
Retirement System to Celebrate Centennial
On December 2, 1911, the Massachusetts Legislature established the Middlesex County Retirement Association. On July 1,
1912, the retirement system for county employees became operative. Employees had the option of contributing one, three or
five percent of wages to the system. Over the next two years, the Board will be celebrating 100 years of providing retirement
security for public employees.
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VOLUME SIX, ISSUE ONE
•
SPRING 2011
Public Pension Normal Cost vs. Social Security Costs
by Brian P. Curtin, Vice Chairman
On page 2 of this newsletter, you will have read Senator Donnelly’s commentary on why the Massachusetts
public pension system is a good deal for taxpayers. Our members should know that the 2010 valuation
of the Middlesex County Retirement System determined that the average normal cost to employers, the
cost which is required to fund the retirement benefit allocated to the current year of service, is 4.55% of payroll.
As Senator Donnelly accurately stated, if public employers in Massachusetts were required to enroll employees into Social
Security, the employer’s contribution would be 6.2% of payroll. And that is not including a public employer’s contributions
to a 401K plan or similar defined contribution plan, as is done in the private sector, the median of which is 3%. The cost to
enroll public employees in Massachusetts into Social Security with a median match to a defined contribution plan would double
what the employer currently contributes to fund the normal public pension cost of the public employee retirement system.
The perception that public pension systems cost the taxpayers more money is a myth, and not supported by the facts. The
Massachusetts public pension system is less costly for taxpayers.
Social Security, Medicare
and You
by Ed McLean, Elected Member
As you approach your 65th birthday,
Social Security will be in contact with
you regarding Medicare. It is critical that
you understand how Medicare coverage applies to you. Medicare
Part A pertains to hospitalization and Part B pertains to other
medical costs, including doctor’s fees and laboratory testing. Public
employees hired before 1986 were not required to contribute to
Medicare. Since then, medical contributions have been mandatory.
If you have not contributed, you may still be eligible through
your spouse’s contributions.
Whether you must take Medicare upon turning age 65 usually
depends on the coverage offered by your employer. However, if
you apply and do not qualify for Medicare, Social Security will
supply a letter to allow you to continue medical coverage through
your employer’s plan. The current cost of Medicare Part B is
$96.40, or $110.50, depending on your income.
Even if you believe that you may not qualify, you should
apply for Medicare benefits and here’s why: As a retiree, if you
are eligible for Medicare Part B and do not enroll when first eligible,
you will be assessed a penalty cost of 1% for each month after your
eligibility date. That is why it is so important that you determine
your eligibility before you turn age 65. Waiting a year to apply
would result in a continuing 12% increase in the normal Medicare
premium, which goes up almost every year. Waiting two years
would result in a 24% increase.
Your failure to apply when eligible will cost you hundreds of dollars
every year. And as the Medicare premium increases, so does your
penalty, which is a percentage of the premium. So it should be of
vital importance that you apply for Medicare Part B when first eligible.
If you are 65 or over and actively employed, you should also apply
for Medicare Part A, as is advised by your employer’s health care
providers. The benefit is that there is no additional cost, as
employees are already paying for coverage in their health insurance
contributions. Active employees will have hospital coverage under
Medicare, but the employer’s health insurance plan will continue
as the primary provider. Your application for Medicare Part A
notifies Social Security that you are 65, but actively employed,
and Social Security will notify your health care provider. Therefore,
when you retire after age 65, both Social Security and your health
care provider are on notice that you are eligible for Medicare Part B,
and are exempt from the penalty.
With some insurance plans, if you are still working at 65, and
your spouse is 65 or over, but retired, your spouse can also defer
Medicare Part B. Social Security will require documentation to
demonstrate that you are still actively employed.
Medicare is a vital component to your retirement security and
you should feel free to ask your employer and health insurer to
help you understand how it applies to you.
www.middlesexretirement.org
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Middlesex County Retirement System News
When Someone tells you our Pension System is too Expensive for
Taxpayers, What do you Say?
by John Brown, Elected Member
There is no question that public employees have been battered around as the cause of the current fiscal
mayhem in Massachusetts, but the facts tell a different story. Likewise, the mavens of doom and gloom
prophesize that public pensions are in jeopardy, but again, the facts tell a different story. Please take a few minutes and read
through the points below and you will realize why our pension
system is a wise investment for the Commonwealth and a sound
benefit program for both active members and retirees.
Employees and Retirees are not the Culprits for
the Lack of Full Funding for Massachusetts
Retirement Plans
Employees are contributing more than their fair share towards
the benefits they receive in retirement. In fact, many will have
financed their entire benefit at retirement and will leave funds
in the system upon their death that will help close the funding
gap. Over the years, employee contributions rates have been
increased multiple times to help fund the retirement plan. In
decades past, employers were not contributing funds to pay
their share of future pensions, and many were taking “excess”
investment earnings from the retirement system to fund
general government operations. The taxpayers of the sponsoring
communities must recognize that the less than optimal
funding level of the public pension system is not the doing
of public employees.
A Private Sector Retirement Model would be
more Expensive for Taxpayers than the Current
Retirement System
According to the Legislature’s 2009 Pension Study Commission,
a private sector employer contributes 6.2 % to Social Security
and typically contributes 3 % towards an employee’s 401(k)
plan for a total employer cost of 9.2 % of payroll.
By comparison, the same report calculates the current employer
cost for the Massachusetts State Employees’ Retirement System
to be 4 % – with three-quarters of the plan’s participants
costing less than 3 % and trending down.
6
In addition, according to National Association of State
Retirement Administrators, the administrative cost of public
defined benefit plans is substantially lower than for a typical
defined contribution plan. A comparison of all states’
contributions toward the total normal cost of pensions shows
that the Commonwealth’s contribution toward normal costs
is among the lowest in the nation.
Massachusetts Compared to Other States
The cost of public sector pensions has received negative media
attention recently, mostly in reaction to states’ challenging
fiscal conditions. It is true that the costs are significant;
however, a broad national discussion obscures important
differences between states. While some states have made policy
choices with detrimental consequences, others, including
Massachusetts, have made more responsible choices.
Your Retirement System is Financially Sound . . .
. . . And this is Why
It’s been more than 30 years since the Retirement Law
Commission and the Funding Advisory Committee recommended
that Massachusetts abandon its pay-as-you-go system for
funding the Commonwealth’s public retirement systems. At
that time, the systems’ reserves amounted to $2 billion –
accumulated completely from employee contributions. The
Commission recommended that Massachusetts follow the
example of the 49 other states and adopt a program that
would pre-fund retirement benefits as they are earned by
active employees while amortizing the unfunded accrued
liability over a period of 40 years. The target date for fully
funding the pension system is now set at no later than 2040.
Under a funded system, the cost of benefits for present active
employees would be borne by present taxpayers and would
not become a liability to future taxpayers.
VOLUME SIX, ISSUE ONE
•
SPRING 2011
recommendations has been borne out in the Commonwealth
and around the nation.
The Commission also recognized that by investing increasing
pension reserves, more and more future benefits would be
paid from investment income as opposed to either employee
or employer (taxpayer) contributions.
In Conclusion, I think after perusing the above information,
Although it would take Massachusetts more than 10 years
to ultimately embrace the fundamental funding principles
that were recommended in 1976, the wisdom of those
the members of the Middlesex County Retirement System,
you and I, are in a strong position to tell one and all: “Public
employee pensions are not the cause for the fiscal malady in
Massachusetts”.
90+ attend Half-day Session for Compensation Specialists
On Thursday, March 23, 2011 the System hosted compensation specialists from member communities for a half-day
informational session. This was an opportunity for Middlesex Retirement Board members and staff to meet with the men and
women who regularly work with our members in the retirement system. As part of the formal presentation, Chairman Tom
Gibson gave an overview of the many pension and retirement laws that have passed in the last year, or are included in the
current legislative session. The System has recently undergone a massive computer upgrade that affects the way we file reports,
and Director Jackie Williams reviewed the new forms and what this means for our members. Many attendees shared cases that
they have encountered and it was good for attendees to learn about challenges and successes their peers have had. We hope to
have these meetings on an annual basis.
Amy Mace and Joanne Grasso, from Chelmsford and East Chelmsford Water
Maureen Carreiro, North Reading and the System’s Sandra Larsen
Thank you to everyone who
attended this program
The meeting was held at the System’s office in Billerica
www.middlesexretirement.org
7
We Salute Our VeteransThe
Middlesex County Retirement System salutes its members
who have left family and friends to answer the call to military
duty. Your sacrifice is appreciated and your service is respected.
Town of Ayer
Town of Hudson
Town of Weston
Charles Dillon
David C. Prockett
Peter Gard
Town of Dracut
Town of Lincoln
Nicholas Laganas
Michael Petelli
Joseph Cavanaugh
William B. Whalen, III
Town of
Wilmington
On behalf of Accidental Death Benefit Recipient
Visit our web site for the most up-to-date
information on retirement and pension news.
Middlesexretirement.org
Thomas F. Gibson, Chairman
Brian P. Curtin, Vice Chair
John Brown, Elected Member
James M. Gookin, Appointed Member
Ed McLean, Elected Member
Middlesex County Retirement System
25 Linnell Circle
P.O. Box 160
Billerica, MA 01865
Middlesex County
Retirement Board
Dan D’eon
Brooke Green
Christopher Elliot
“Again, my mother, my sister and I
want to thank you very much for all
of your assistance with this process.
We are most appreciative of the efforts
of the Middlesex Retirement Board
and PERAC staff.”
Kara Kosmes