No Change to Employee Healthcare, Retirement or other Benefits or Contributions
Union leaders and the Governor have arrived at a plan that DOES NOT impact retirement benefits or employee contributions. This is a pension funding change which will ensure that future pension obligations can be met and the pension system remains stable. This plan will still need approval from the legislature.
We are all aware that the pension fund is far below "fully funded" status. The Governor had been aiming to pay off the unfunded liabilities by 2032 through increasing annual pension payments. Each year, the State was committed to increasing its pension fund payments by a few hundred million dollars annually until we reached a payment of $6 billion in 2032, which the Governor consistently referred to as the "fiscal cliff". This was a growing problem for future state budgets with an increasing public impact. About a year ago, Comptroller Lembo created an alternate plan and began a conversation which would restructure (some call it re-finance) the pension funding payment plan. That conversation has continued over the past year. All parties wanted a plan that would secure our pensions while increasing stability in State budgets.
The “bullet points” of the agreement are best understood by actuaries who review the State’s financial position and to apply a rating to the State’s economic stability and to determine the State’s bond rating. The “plain english” version of the plan is that this will smooth out annual payments and stretch some of the liability over 30 years rather than all of the liability over just 16 years. It also improves (makes them more realistic) the actuarial assumptions used to calculate the pension liability.
The bullet points:
- Reducing the assumed rate of return on investment from 8 percent to 6.9 percent;
- Transitioning from "level percent of payroll" to "level dollar" amortization over five years;
- Moving to Entry Age Normal cost methodology;
- Maintaining 2032 as the payoff date for the unfunded liability accrued through December 31, 1983; and
- Extending the amortization period for the balance of the unfunded liability in a new 30-year period.
These changes, if adopted by the legislature, will NOT impact benefits or increase any cost to members.
Link to the Boston College Pension Funding Report
Link to the S&P Global Rating "revised to negative"
Posted 12/9/16