State Rep. Candidates' Question: Dealing with Unfunded State Pensions

Each week for the remainder of the campaign, Belmont Patch will be providing a "Question of the Week" to the candidates for the House of Representative's 24th Middlesex District – Jim Gammill, Tomi Olson and Dave Rogers – that will run on Tuesday mornings.

Below is the question and the candidates' answers.

Question of the Week
Despite having a stable pension system, Massachusetts is confronting up to $17 billion in unfunded state employee pension costs which will be a major burden to taxpayers in the near future. While Gov Patrick enacted reforms in 2011 that focused on new employees paying more of their own pension and agreed to extend the schedule for fully funding the pension system from 2025 to 2040, any significant savings are many years down the road.

As State Rep., what ideas (pick two or three) would you suggest to control and/or reduce pension costs while securing funds to pay existing obligations.

Tomi Olson, Republican

The pension issue is complicated. State Sen. Will Brownsberger’s research on this issue in 2011 resulted in an award from the non-partisan Pioneer Institute. But his recommendations were not included in the “cosmetic pension reforms passed during the most recent legislative session.”

The Pioneer Institute points out that pension reform should include three goals: “attracting and retaining a quality workforce, treating that workforce equitably, and ensuring that the system does not place an undue burden on taxpayers.”

Both Brownsberger and the Pioneer Institute have noted that the system with “as it exists today creates tangible unfairness among public employees — special deals for special classes of employees."  (Brownsberger). To abolish this practice will take a tremendous bi-partisan effort and much political persuasion.

Brownsberger’s analysis recommends a Social Security-like plan with 67 set as the retirement age, opportunity for matching contributions,  and COLAs. Since the new 62 is now 72, it makes sense to advance the retirement age.  Additionally, this small change will help municipalities as retirement benefits are tied to payment of retiree health costs.

I would also give serious consideration to the following three recommendations from the Pioneer Institute which are briefly as follows:

Enact pay-as-you-go language to require any change in benefits to be funded, in full, within three years reducing he incentive to push costs onto future taxpayers.

Tie benefits more closely to lifetime contributions. This change would stop a large salary increase late in one’s career from inflating one’s pension.

Pro-rate pensions based on tenure in each group to eliminate large windfalls based on only a short service 
 These reforms would address many of the system’s current inequities, according to the Pioneer Institute.

As for new revenues, more jobs means more payroll taxes and revenue for the Commonwealth.

Dave Rogers, Democrat

As the question notes, there has been significant pension reform passed within the past several years. In fact, in 2009 and again in 2011, two major pension reform laws were passed by the Democratic legislature and signed by Gov. Patrick.

The first pension reform law eliminated loopholes and abuses, and the other pension reform law was more systemic in nature: increasing retirement ages, increasing contribution requirements for new employees, and many other changes. Together these twin reforms should save the state $5 billion over time. While I might not have agreed with every aspect of these laws, I would have voted for them even in the face of opposition by traditional Democratic constituencies.

Moreover, I am open to further reforms designed to improve the pension system and improve its long-term solvency. Without addressing pension obligations, critical investments in other areas whether it be health care, the environment, or social services potentially will be sacrificed. On the other hand, it must be noted that state employees do not receive Social Security and will contribute substantially to funding their own retirement under the new 2011 law.

One reform I would explore is whether the state’s contract with the professional fund managers is fair and equitable, and whether those fund managers are doing a good job of securing solid returns on the pension fund’s investments. Furthermore, it is worth exploring the consolidation of local pension boards into the state system which some experts believe will result in higher returns for the municipalities. Finally, if these solutions do not adequately address the finical problems approaching, we would have to look at the revenue side for a potential solution.

There is also the approximately $17 billion in unfunded obligations regarding Other Post Employment Benefits (OPEB) in the state, which includes retiree health care. There is a Special OPEB Commission examining potential reforms in this area. I am watching that commission's work very closely and their report is due in November. If there are reforms recommended in the report that will help reap savings in OPEB, without breaching our obligations for contractual promises already made, then I will seriously consider them.

Above all else, it must be noted how we got to where we are today. For 40 years, workers and unions paid into the established pension system, while municipalities tended to underfund their financial obligation. This is largely what has lead to the financial problems we have with pensions today. Though I think we need to seriously look at further reforms to ensure future financial viability, we must do this while keeping the larger context of how we got here in mind.

Jim Gammill, Independent

The financial reality is that the state has committed us – the current and future taxpayers – to make good on a number of promises. These promises come in different forms, including pension and health care benefits for retired workers, interest and principal payments for bondholders, and government services for constituents. Right now, we have the funds to get by year to year. But when we do the math honestly, we realize that in the future the cost of the promises will far exceed the funds we can reasonably expect from the future taxpayers.

The pension system is a big part of the challenge. Because we are not in an immediate cash crisis, it is tempting for political leaders ignore it today.  But by ignoring it, we will make the situation much more difficult for those who follow us.

I can do three things to bring a sense of urgency.

First, I will encourage an informed dialog about the implications of our choices. As a finance Ph.D and former business school professor, I know how seemingly small changes in assumptions can influence the projections and thus the conversation. I will keep the discussion centered on the major issues and make sure all perspectives are heard.

Second, I will present the case for the same long-term solution that the federal government adopted more than 25 years ago – to require employees to take a greater ownership of the investment risk and return in the retirement portfolio. Workers in the private sector and in the federal government alike are operating under these same terms, and their organizations have a manageable level of financial risk and flexibility as a result.      

Third, as the Independent, I will speak to the financial reality as I see it. I am free of any peer-pressure from party leaders or interest groups, and can work with Democrats and Republicans to shape a lasting solution.