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. 4 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 5 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
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