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David Barron
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Linda Bilmes
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Brandy H.M. Brooks
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Felicia Cote
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Suffolk University Law School student

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Arthur Hardy-Doubleday
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Theodore Kalivas
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Antoniya Owens
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Susan Prosnitz
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Ben Thomas
Boston Green Blog, Dukakis Center for Urban & Regional Policy

Matthew Todaro
Student at Boston College Law School

Alexander von Hoffman
Senior Researcher, Joint Center for Housing Studies

Brett Walker
Student, Boston College Law School

Margarita Warren
Student at Suffolk University Law School

Can the state and its communities meet their obligations without raising taxes, cutting services or reneging on benefits?

Wednesday, May 11th, 2011
By

Reprinted from the Worcester Telegram & Gazette

Expert: Most public pension plans are solvent for the next 20-30 years

By Dave Greenslit CORRESPONDENT

WORCESTER —  The public pension system cannot be sustained, but it can be fixed. That was the consensus of panelists this morning at a forum sponsored by The Research Bureau and the Rappaport Institute at Harvard's Kennedy School. The discussion was held at the Massachusetts College of Pharmacy & Health Sciences.

While the debate over public employee benefits has not been as rancorous in Massachusetts as elsewhere in the country, the state is grappling with the same issues, said moderator David Luberoff, executive director of the institute.

He asked: Can the state and its communities meet their obligations without raising taxes, cutting services or reneging on benefits?

J.P. Aubry, a researcher at the Center for Retirement Research at Boston College, said a survey of 126 state and local pension plans in the country revealed they will have $1 trillion in unfunded liability by 2013.

Before the economic meltdown, he said, there wasn't much concern about the issue, but now bond rating agencies are beginning to include pension liability in their analyses, which will affect borrowing costs.

“But the liability doesn't have to be paid off tomorrow,” he noted, adding that most plans are solvent for the next 20 to 30 years.

He outlined several possible pension system reforms, including increased contributions from workers, increasing the retirement age and basing pensions on career average earnings versus final earnings.

Another possibility, he said, is “stacking” defined benefit and defined contribution pensions, so that workers above a certain salary would contribute more toward their retirement.

City Auditor James DelSignore said Worcester, which began its pension system in 1945 and has accrued unfunded liability since “Day One,” now has $300 million in unfunded liability.

But he said public plans are not as susceptible to volatility as private plans, and he urged a long-term view of the situation, giving the markets time to even out.

“Just let it work,” he said in a brief interview after the panel discussion. “The last decade was the worst since 1926. A lot of that liability is going to disappear.”

In the panel discussion, Mr. DelSignore said Worcester would have earned $35 million less in investment income had it been forced into the state retirement system, as some local systems that didn't meeting funding requirements were made to do in 2007.

Stephen Lisauskas, a consultant for the Collins Center for Public Management at the University of Massachusetts at Boston, said solutions to the public pension problem will be expensive and will require “adult decisions.”

“Something has to give,” he said.

He pointed out that Massachusetts is in better shape than many states because of its funding requirements.

And he agreed with other panelists that pension liability is a long-term problem that can be solved by most systems. 


Panel: Public Pensions Need Reforms

by Matt Pilon, Worcester Business Journal

A panel of retirement-benefit experts gathered in Worcester this morning concurred that the public pension system in Massachusetts is unsustainable, but fixable.

"We're not Wisconsin or New Jersey, but the fact is we are wrestling with the same issues," said David Luberoff, executive director of the Rappaport Institute for Greater Boston at Harvard University.

Luberoff, who moderated the discussion, was joined by James DelSignore, Worcester City Auditor and Retirement Board chairman; Stephen Lisauskas, associate at the UMass Boston Collins Center for Public Management; and Jean-Pierre Aubry, assistant director of state and local research for the Boston College Center for Retirement Research.

The panel was organized by the Worcester Regional Research Bureau and was held at the Massachusetts College of Pharmacy and Health Sciences on Foster Street. The WRRB issued a report on Worcester's pension system in 2009, characterizing it as too expensive and prone to abuses.

The four panelists said that reforms, and likely painful ones, are needed to ensure the viability of state and local pensions systems here.

"The money has to come from somewhere," Lisauskas said. "The solutions will be expensive and will require adult decisions."

Nationwide, there is a roughly $1-trillion gap between what public pensioners have been promised and what pension systems have saved up, according to the Pew Center on the States, a division of The Pew Charitable Trusts. Massachusetts is facing an approximately $20-billion unfunded pension liability.

Possible solutions suggested by the panel included pension systems paying their full required contribution, increasing the retirement age and reducing the potential for abuses.

But there was also good news this morning from panelists, who said that Massachusetts laws that require municipalities to pay down their unfunded pension liabilities each year put the state in far better condition than some other states in the country.

Aubry said that pension plans in Massachusetts have another two to three decades left in them before they go broke.

"Solvency is not an immediate issue," Aubry said. "Liabilities don't need to be paid off tomorrow."

DelSignore, the city's auditor, railed against "heat of the moment" legislation that was passed in the wake of the 2008 financial collapse that requires underperforming pension funds to be rolled into the state's pension plan. Worcester's fund was not among them. It has outperformed the state fund for the past three years, DelSignore said.

He argued that legislators need to look at the financial markets in historical perspective, noting that the S&P 500 has averaged 10 percent growth per year since 1926.

"Just let it work," DelSignore said.





 


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