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Budget talks revise pension reform plan

Last modified: 6/16/2011 12:00:00 AM
Lawmakers yesterday wrote a revised pension reform package into the state budget after Gov. John Lynch vetoed a similar retirement bill earlier in the day.

The moves came after the retirement system trustees Tuesday opted to accelerate a planned lowering of the assumed rate of return on investments. Before that decision, the pension reform package negotiated by lawmakers would have reduced employer contributions by $160 million over the next two years, said Marty Karlon, spokesman for the retirement system. Under the new set of investment assumptions, the reform measures would reduce employer contributions $47.6 million, he said.

Gov. John Lynch, a Democrat, yesterday vetoed the pension reform bill, saying he would not sign the legislation because lawmakers were considering substantive changes.

Budget negotiators then adopted the language of the vetoed pension reform bill with a change that would nullify the trustee vote. The pension provision included in the budget delays the lowering of the assumed rate of return to July 2013, when it was initially scheduled to take effect.

The vetoed pension reform measure changes the composition of the board of trustees so that employees no longer outnumber the remaining members. The version added to the budget last night makes that change effective in July, rather than September. Sen. Chuck Morse, a Salem Republican, said the accelerated date will allow for a smooth transition to the new structure, since the terms of four trustees expire at that time.

The system trustees had voted in May to lower the anticipated rate of return on system investments in July 2013 from 8.5 percent to 7.75 percent. Since employer contributions are set in statute, lowering the expected investment earnings would require raising the rate of contribution from employers, such as towns and school districts.

On Tuesday, the system trustees voted to use the new assumed rate of return if any new law required them to recalculate employer rates for the next two years, Karlon said. Under the original 8.5 percent assumed rate of return, employers would have saved $75 million in 2012 and $85 million in 2013, Karlon said. Under the recently adopted 7.75 percent assumed rate of return, they would save only $22.6 million in 2012 and $25 million in 2013.

The board voted 8-6 to use the new rates of return for 2012 and 2013, with the eight members from employee unions voting in favor. The assumed rate of return was last changed in November 2005, when it was lowered from 9 percent to 8.5 percent.

The pension reform legislation aims to reduce retirement costs for employers by requiring employees to work longer and contribute more. Under the plan, police officers and firefighters who have worked less than 10 years would have to work 25 years and reach age 50 before retiring, rather than working 20 years and reaching age 45. The retirement age for newly hired nonemergency workers, such as teachers and clerks, would rise from 60 to 65.

The plan increases the number of years used to calculate pension payments of new hires and workers with less than 10 years of service. Instead of calculating pension payments from the three most highly paid years of employment, the calculation would be based on five years. All employees would see their retirement contribution rate rise between 2 and 2.5 percent on July 1.

House Republicans were quick to criticize the veto. House Majority Leader D.J. Bettencourt released a statement saying Lynch "appears to be in the back pocket of the state's union bosses." He said lawmakers had taken a step toward addressing the unfunded liability of the retirement system.

"With the stroke of a pen, Gov. Lynch has seriously jeopardized the future of that system," he said in the statement.

House Speaker William O'Brien said in his own statement calling the pension reform bill a "critical, common sense reform" that would fortify the retirement system and protect taxpayers.

"An unfunded retirement system is a ticking time bomb for the taxpayers of the state," O'Brien said.

(Karen Langley can be reached at 369-3316 or klangley@cmonitor.com.)


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