Report: Mass., municipalities facing pension woes

BOSTON (AP) - Public worker pension liabilities are continuing to mount despite the large sums state and municipal governments in Massachusetts have contributed to pension funds, a business-backed advocacy group warned in a report released Thursday.

State and local governments in the state are on the hook for $83 billion in unfunded pension and retiree health care obligations, the Massachusetts Taxpayers Foundation report found.

While the total for covering all the benefits promised to current employees and retirees comes in at about $146 billion, state and local governments have set aside less than half that amount, about $63 billion, leaving an $83 billion hole.

"A variety of factors account for this reality, including legislation to enhance benefits and provide early retirement incentives," the report said.

Another factor cited by the study is the failure of most retirement systems to achieve what it called "the typical 8 percent or 8.25 percent target for annual earnings on pension assets."

The report's author also faulted public retirement systems for extending funding schedules - from 2018 to 2040 in the case of the state - to restrict short-term growth in contributions. They said that could add dramatically to long-term costs.

There have been attempts to address the pension liability problem.

In 2011, Gov. Deval Patrick signed a law designed to overhaul the public employee pension system.

Backers of the law said it would end up saving the state $5 billion over the next 30 years.

But Thursday's report notes that many of the fiscal benefits of the 2011 law won't be seen for many years - in large part because it hikes the minimum state retirement age from 55 to 60 only for those state workers hired after April 2, 2012.

The report said that in 2012, the amount of savings generated by the law was practically nonexistent - reducing the total liability for state employees, excluding teachers, by just $500,000.

An equally daunting problem is the unfunded liability challenge for retiree health care benefits, the report said.

Without changes to benefits, the state and municipalities will need to set aside $46 billion just to meet the costs of the benefits already owed to current employees and retirees.

The problem is most severe for cities and towns, the report said.

Earlier this year, Patrick proposed legislation calling for changes in future retiree health care benefits for state and municipal employees that he estimated could save up to $20 billion over the next 30 years.

The bill would increase the minimum years of service an employee must have before being vested in the retiree health care system from the current 10 years to 20 years, while the minimum eligibility age would rise from 55 to 60 for most workers.

The changes would not affect current retirees or employees who are within five years of retirement and have completed 20 years of service.

Patrick said the goal of the bill, which is scheduled to come up for a public hearing at the Statehouse at the end of the month, is to "create a benefit system that is both fair and sustainable."

Cox Media Group