What’s wrong with the Public Pension System?

What’s wrong with the public pension system?  Above all, it’s too complicated.  Complexity creates abuses and inequities.  It also makes the system hard to evaluate and undermines confidence in the system.

The basic idea of the public pension system in Massachusetts (which looks a lot like the systems in most other states) is simple:   Your retirement benefit is based on your highest three years of  compensation.   You get a percentage of the high three which is computed as your years of service multiplied by a number of points based on your retirement age.

For example, suppose you retired at 65, having advanced to a position of some responsiblity and had been making $55,000 per year for the last three years of your service.   The  point level is 2.5 at age 65.  If you had 32 years of service, then your pension percentage would be 80% — 2.5 x32 — and your pension would be 80% of $55,000 or  $44,000.

Given that the maximum social security benefit is currently just under $28,000 and the average roughly half that, this seems quite generous.  However, many private sector workers have some form of corporate pension or retirement account in addition to social security, while lifelong state and local employees in Massachusetts often have nothing but their pension — they do not participate in social security.   The best data that I have come across suggest that many public employees are among the better compensated employees in the economy, but there is no consensus among experts on this point.

What the experts do agree on is the potential for abuse and inequity in the complex system.   There are two kinds of problem — special rules and general rules applied in inequitable ways.   The legislature tackled and eliminated most of the special rules in a reform bill earlier this year.

Among those special rules eliminated were the rules that allowed elected officials to get credit for unpaid or very-low-paid local service.  This was a provision that related to me personally, as I had nine years of service credit as a selectman.   The reforms were applied only to service after the date of the act, and I was therefore not affected by the law, but at my request, the state pension board has applied the changes to me retroactively.   Applying the changes to my service record means that  seven years of it are no longer creditable, which results in roughly a 25% reduction in the pension available to me were I to retire after continuous service to the age of 65.

A blue ribbon commission worked through the summer and produced a report that speaks to some of the inequities that result from the more general rules.   The problems arise mostly when people change jobs near the end of their career, moving from low-paid jobs to high-paid jobs or moving from desk jobs to public safety jobs (public safety jobs accumulate retirement points more quickly).   In these cases, the employees have typically contributed much less relative to the benefits that they receive than other employees.

Another kind of problem arises when employees have service outside the pension system which they wish to receive pension credit for.  Many of these cases make some sense — for example an educational administrator who spends some years out of the school department on the payroll of an interdistrict collaborative.  But the lines get blurry very fast.   The legislature’s public service committee entertains dozens of requests for narrow  legislation on issues like this every year.

Hopes for swift passage of a second reform measure this fall dimmed as it became clear that the committee was deeply divided on its recommendations.     I’ll continue to advocate for pension simplification and to write occasionally about these issues over the months to come.

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.