Senate, House Pass Landmark Pension Reform Legislation
Closes loopholes in current law, eliminates abuses
BOSTON – Continuing the Legislature’s ambitious reform agenda, the Massachusetts Senate and House of Representatives on Thursday approved landmark legislation that will eliminate the worst offenses in the state pension system. The final bill, which now goes to the Governor for his expected signature, shuts down loopholes in current law, saves taxpayer money, and helps restore public trust in the state oversight of public pensions.
“By closing these loopholes, we strengthen state pension laws and eliminate various methods of system abuse,” said State Senator Benjamin B. Downing (D-Pittsfield).
Senate President Therese Murray (D-Plymouth) said the bill is a major step forward.
“The Legislature’s actions today put an end, once and for all, to the most serious abuses and answer the public outcry for significant changes in our pension system,” President Murray said. “This was a bi-partisan effort to fix a system that allowed too many to take unfair advantages. Not only have we ended these activities, we will also continue to look at more complex issues within the system for more comprehensive reforms and savings for the Commonwealth.”
The state’s pension system is an important benefit for state workers who chose generally low-paying careers in public service over the private sector. The average pension for Massachusetts public employees is approximately $24,000 a year. There are examples, however, of individuals who exploit loopholes to increase pension payments at a high cost to the state.
The new legislation contains common-sense reforms that would apply to all current and future employees who retire after July 1, 2009:
Removes the “one day, one year” provision that allows elected officials to claim an entire year of credible service for working one day in a calendar year.
Removes a provision that allows elected officials to claim a “termination allowance” based on the failure to be nominated or re-elected.
Reforms the current accidental disability retirement benefit so that it is tied to the 12-month average of compensation received prior to the date of injury.
Redefines “regular compensation” to specifically exclude certain monetary benefits like housing, lodging, travel, automobile usage or annuities for the purposes of a pension benefit calculation.
Strikes current provisions that allow certain officials to establish pension credit for service in positions that have no compensation. Officials and employees currently serving in a position earning $5,000 or less in compensation will be ineligible for credible service after their current term expires, or by July 1, 2012, whichever occurs first.
Reforms dual-service pensions so that an individual cannot combine the compensation from two positions to artificially increase one’s pension. An individual who is a member of two or more systems will receive benefits as if retiring separately from each system, unless they are vested in both systems before January 1, 2010.
Extends the “vesting” requirement of elected officials from 6 years to 10 years.
Eliminates a loophole that allows individuals receiving pension benefits to return to work and receive a full salary in addition to pension benefits if the individuals are classified as “consultant” or “independent contractor.”
Allows for other reforms to increase efficiency in the retirement system, such as the direct deposit of retirement benefits.
The legislation is just the beginning of important fixes to state pension laws.
The bill also directs the currently-established Blue Ribbon Commission on Pension Reform to examine broader issues within the system and considering changes, such as capping large annual pension payments, eliminating termination allowances for all state employees, imposing criminal penalties for pension fraud, and restructuring qualifications for creditable service.
The Commission will make its comprehensive reform recommendations to the Legislature by September 1, 2009.