Study Says MA State Unfunded Pension Liability Rising

Share on Facebook

Share on Twitter

Share on

LinkedIn

More responsible assumptions about pension fund investment performance partially responsible for increase

BOSTON – Despite several reform bills targeted at the Commonwealth’s public pension system in recent years, the unfunded actuarial accrued liability (UAAL) has continued to rise and is drawing closer to a crisis level, according to a new study published by Pioneer Institute.

“The Commonwealth’s public pension system is in deep trouble and liabilities have nearly tripled since 2003,” said Greg Sullivan, co-author of “Massachusetts’ Skyrocketing Unfunded Pension Liability.” “This is occurring despite repeated efforts to eliminate provisions that allowed rampant abuses and have increased current costs and future obligations.”

Despite numerous reform efforts, Massachusetts ranked 11^th among the states in 2016 in unfunded pension liability per capita ($5,642 per resident). An Urban Institute study gave the Commonwealth’s public pension system (which includes the State Employees’ Retirement, Teachers’ Retirement, and Boston Teachers’ Retirement systems) an “F,” due to its “dismal funding ratio and failed commitments to making required contributions.”

From 2003 to 2017, Massachusetts’ public pension unfunded liability increased by 196 percent, from $13.4 billion to $39.6 billion. Various legislative reforms, the most comprehensive one enacted in 2011, eliminated loopholes that enabled abuses, decreased future pension costs by raising the minimum retirement age, and adjusted age factors used to calculate future pension benefits. Still, the unfunded liability has increased by more than $20 billion since 2011.

One reason why the unfunded liability has risen is because the Commonwealth has reduced the assumed rate of return on pension fund investments to more responsible levels. Until 2012 the assumed rate was 8.25 percent. The Public Employee Retirement Administration Commission reduced the assumed rate of return to 8 percent in 2013, to 7.75 percent in 2015 and finally to 7.5 percent in 2016.

Every three years, the Commonwealth releases an updated pension system funding schedule, which shows the annual contributions needed to retire the unfunded pension liability. While the most recent funding schedules, released in 2011, 2014, and 2017, have maintained 2037 as the target date for fully funding the pension system, each schedule pushes more payments back to later years. The 2017 funding schedule included $45.8 billion more in required contributions than the 2011 schedule. Nearly 60 percent of the additional contributions are scheduled to be made between FY2031 and FY2037.

“Since 2003, overall stock market performance has been positive, the Massachusetts economy has grown faster than the national economy and we’re ahead of 35 states in terms of GDP growth,” Sullivan said. “If the Bay State couldn’t curb UAAL growth over such a period, how are we going to defuse the ticking time bomb of our public pension systems?”

Sullivan and co-author Rebekah Paxton urge the Commonwealth to reconsider legislation filed by state Senator William Brownsberger in 2011 that would provide a defined benefit comparable to Social Security for new employees and enroll public employees in a defined-contribution pension plan to build a supplemental retirement benefit. This reform would decrease incurred liabilities while maintaining a retirement plan for new hires.

About the Authors

Rebekah Paxton is a research assistant at Pioneer Institute. She first joined Pioneer in 2017 as a Roger Perry intern, writing about various transparency issues within the Commonwealth. Since then, she has worked on various research projects in state finance, public policy, and labor relations. She recently earned an M.A. in Political Science and a B.A. in Political Science and Economics, from Boston University, where she graduated summa cum laude.

Gregory Sullivan is Pioneer’s Research Director. Prior to joining Pioneer, Sullivan served two five-year terms as Inspector General of the Commonwealth of Massachusetts and was a 17-year member of the Massachusetts House of Representatives. Greg holds degrees from Harvard College, The Kennedy School, and the Sloan School at MIT.

About Pioneer

Pioneer Institute is an independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.

Get Updates on Our Economic Opportunity Research

Related Posts

Study Finds Pension Obligation Bonds Could Worsen T Retirement Fund’s Financial Woes

June 21, 2022

A new study published by Pioneer Institute finds that issuing pension obligation bonds (POBs) to refinance $360 million of the MBTA Retirement Fund’s (MBTARF’s) $1.3 billion unfunded pension liability would only compound the T’s already serious financial risks.

Study: Pandemic Pension Bonus Bills Would Cost Billions and Unfairly Favor Highly Compensated Public Employees

October 26, 2021

Two identical bills to reward public employees with a retirement credit bonus for working during the COVID-19 emergency are currently pending in each chamber of the Massachusetts Legislature. The bills would add billions of dollars in liabilities to public pension funds and reward workers based on their compensation, years of service and age rather than the type or duration of the work performed during the emergency, according to a new study published by Pioneer Institute.

Public Statement on the MA Legislature’s Blanket Pension Giveaway

July 26, 2021

Beacon Hill just put on full display what happens when it is awash in money. House Bill 2808 is entitled, “An Act relative to providing a COVID-19 retirement credit to essential public workers.” It calls for adding three years of additional retirement credit to state “employees who have volunteered to work or have been required to work at their respective worksites or any other worksite outside of their personal residences during the COVID-19 state of emergency…” But upon reading the brief bill, it quickly becomes clear that this legislation is irresponsible in the extreme.

Now anyone can become a local pension system expert... A…

Study Estimates $27 Million In Savings Annually From Consolidation Of Public Pensions

0 Comments

April 19, 2017

Local retirement systems generate heavy costs, larger fiduciary…

Study Says State Unfunded Pension Liability Rising Despite Recent Reforms, Overall Strong Economy

Get Updates on Our Economic Opportunity Research

Study Finds Pension Obligation Bonds Could Worsen T Retirement Fund’s Financial Woes

Study: Pandemic Pension Bonus Bills Would Cost Billions and Unfairly Favor Highly Compensated Public Employees

Public Statement on the MA Legislature’s Blanket Pension Giveaway

Whistleblowers Were Proven Right: MBTARF Was Underreporting Its Unfunded Pension Liabilities

Study Says State Unfunded Pension Liability Rising Despite Recent Reforms, Overall Strong Economy

So you want to know something about pensions?

Study Estimates $27 Million In Savings Annually From Consolidation Of Public Pensions

Study: Evidence Suggests MBTA Pension Low-Balled Costs And Liabilities

Study: Inefficient Public Pension Investment Costs Taxpayers About $100 Million A Year

Study: T Pensions Would Be Worth $902M More Had Assets Been Managed by State Pension Fund After 2000

A $49 Million Sweetheart Deal: MBTA Employee Sick Time Perk Enhances Pensions

Study: Massachusetts Public Pension Systems Unprepared for Next Recession