Another Pension Commission Report

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The Special Commission on Pension Reform met again on Monday.

I was struck by the Commission’s eagerness to raise the COLA base and their reluctance to seriously consider much meaningful cost-savings. The approach they are taking is like going to McDonalds and ordering five Big Macs but making a special point to get a Diet Coke. The changes that are being considered will result in savings for new employees only (to be realized in 20+ years) but enhanced benefits will apply to current employees and retirees (adding costs now).

I’m not opposed to an increase in the COLA base in principle but I think we need to have a sustainable means for funding in place, or we just exacerbate the problem of the unfunded liability. Several committee members noted that the $100 million+ increase in operating budget expenditures (that’s a yearly increase, ever year, for approx. 20 years) to fund the planned COLA increase could be “easily absorbed”. Its always curious to me how a $130 million year-on-year decrease in state expenditures (as we had from ’08 to ’09) is a crisis/meltdown/moral failure, while a $100m+ increase is “easily absorbed”.

It’s worthwhile to note that the affirmation of support for the COLA increase was punctuated by one Senator’s statement of support for raising the COLA base without worrying about off-setting savings.

It fell to the Patrick Administration’s appointee to note that reforms which resulted in the lowering of an unfunded liability (in this case the $13 billion unfunded OPEB liability) were not exactly the same as “savings” which could be redistributed in the form of enhanced benefits.

The flip side of the Committee’s disinterest in the implications of a COLA base increase was their intense desire for detailed information about how the proposal to pro-rate reimbursement for retiree health care would affect employees. As few know, public employees with ten years of service qualify for health insurance (at the standard premium share rate) at age 55. There is no funding source (like there is for pensions) for this benefit and the unfunded liability for the state is close to $13 billion.

The proposal put to the committee was to pro-rate the public side’s contribution starting at 10 years of service and culminating in 100% coverage (of the gov’t’s premium share, to be fair) at 25 years of service. Much of the committee was distinctly uncomfortable with this provision.

There were a few other points of interest – it was not clear what they meant but the System Financing subcommittee mentioned support for a 30 year rolling funding schedule. I’ll look forward to learning more about this one.

This subcommittee is considering breaking the pension fund up by classification, which would be a useful exercise to see which classifications are more heavily subsidized than others.

The Commission initially pledged itself to cost-neutrality. If Monday’s session was any indication, it will be hard-pressed to deliver on this pledge. Almost every potential source of cost-savings was met by requests for more, better, detailed analysis while benefit enhancements were embraced quickly. Outside of that room, municipalities are struggling to fund pension assessments and pension funds are reporting massive losses. Inside that room, everything is seemingly well. I’m deeply curious about the policy and political implications of the recommendations that this Commission seems headed toward.