Emailed to me by Mike Sullivan – Swampscott selectmen seek authority to deal with unfunded retirement benefits for new employees -
I wanted to reach out to all Massachusetts municipal officials about a Home Rule Petition the Town of Swampscott is pursuing relative to pension reform. The goal of this petition is to give freedom to each city and town in the Commonwealth to offer an affordable plan for retirement benefits to new hires. As you know, the State of Massachusetts currently mandates a defined benefit plan. In other words, we have no freedom to choose what is a financially sound plan for our city or town.
A quick visit to the PERAC web site details how towns from Andover ($75 million unfunded liability) to Melrose ($45 million unfunded liability) to Swampscott ($36 million unfunded liability) are facing onerous debt that is now and will continue to be a drain on investment in capital improvements, education and town services.
And it will get much worse if we don’t act soon.
Interestingly, the Government Accounting Standards Board (GASB) passed new rules for pension accounting that go into effect in 2013. Two key components of the changes will force pensions to use a much more realistic method of “discounting” or, what most people refer to as investment returns. The State still uses 8.25% as a discount rate for future investment returns by pensions. In its Annual Report, PERAC likes to refer to an average rate of return over the last 27 years of close to 9%. But the reality is that since 2000, the return is closer to 4%. This has a dramatic effect on unfunded obligations and as a result, how much of your property tax revenue is spent on benefits.
GASB will require all municipalities to use a number closer to 2% to determine a true accounting of each system. When that happens, look out below – taxpayers will be shocked to learn how much they are on the hook for in the future. Additionally, GASB will no longer allow for smoothing, which enables pension accountants to meter out the highs and lows, giving a skewed view of the current liabilities and assets. To read exactly what GASB will be requiring, click here.
I believe the State has not done enough to mitigate the risk of pension fund exposure to taxpayers. That is why I’m pushing a Home Rule petition that gives each municipality the right to choose a plan – for new employees – that it finds affordable. Ideally, the State would offer multiple plans to choose from, whether a defined benefit, shared risk or defined compensation plan. For those towns that want to continue down the same path they are on – no problem. But for those of us who are compiling unwanted liabilities and seeing retirees live longer while fewer current employees are paying into the existing plan – we’d have some relief.
This type of system is working in Connecticut, Florida and other states that allow for Home Rule. If you’d like to read articles on successful negotiations between unions and municipal government for new employee benefits, click here.
I’m asking you to join my efforts and help build a coalition for Home Rule. If you would like to see the language Swampscott currently plans to use as an Article this spring at town meeting, please email me and I’ll send over a copy. We are open to suggestions you may have as well.
Selectmen, Town of Swampscott
Editor & Publisher, EfficientGov