House Passes Landmark Pension Reform Legislation, Signed by Gov.

House Passes Landmark Pension Reform Legislation, Signed by Gov.

Close loopholes in current law, eliminate abuses of system

(Boston) – Continuing the Legislature’s ambitious reform agenda, the Senate and House last week approved landmark legislation that will eliminate the worst offenses in the state pension system. The final bill, which was signed by the Governor this week, shuts down loopholes in current law, saves taxpayer money, and helps restore public trust in the state oversight of public pensions.

“This legislation is a great stride in the right direction,” State Representative Jeffrey Sánchez said. “Being able to say to my constituents that I heard your desire for reform, this was an important step to ensure the public trust. No citizen should have to worry about potential holes in the system out of which their hard earned savings may fall victim to unscrupulous individuals. This week was an important process of the transformational agenda the legislature has undertaken this year with pension, ethics, and transportation reforms.”

“I also believe that it important for state employees to take pride in their hard work and dedication to the Commonwealth and not be painted with the broad brush of abuse wielded by only a few individuals” Sánchez said. The state’s pension system is an important benefit for state workers who chose generally low-paying careers in public service over the private sector, and forgo Social Security. The average pension for Massachusetts public employees is approximately $24,000 a year. There are examples, however, of individuals who exploit loopholes to increase pension payments at a high cost to the state.

When the recent legislative session started, the House of Representatives vowed that pension reform would be one of the first items that the House would address. For the public to have trust and confidence in public officials they must bring government pension standards in line with everyone else – and now they are. “I am proud of the House’s vote,” said Rep. Sánchez. “With this pension bill, the House is doing what so many doubted they could do – bring real reform to Beacon Hill.”

There are loopholes in the system which have led to serious abuses. This bill will close those loopholes and stop the abuses. It is a very important first step toward restoring public confidence and ensuring equitable treatment between retirees.

The new legislation contains common-sense reforms that would apply to all current and future employees who retire after July 1, 2009:

  1. Removes the “one day, one year” provision that allows elected officials to claim an entire year of credible service for working one day in a calendar year.
  2. Removes a provision that allows elected officials to claim a “termination allowance” based on the failure to be nominated or re-elected.
  3. Reforms the current accidental disability retirement benefit so that it is tied to the 12-month average of compensation received prior to the date of injury.
  4. Redefines “regular compensation” to specifically exclude certain monetary benefits like housing, lodging, travel, automobile usage or annuities for the purposes of a pension benefit calculation.
  5. Strikes current provisions that allow certain officials to establish pension credit for service in positions that have no compensation. Officials and employees currently serving in a position earning $5,000 or less in compensation will be ineligible for credible service after their current term expires, or by July 1, 2012, whichever occurs first.
  6. Reforms dual-service pensions so that an individual cannot combine the compensation from two positions to artificially increase one’s pension.  An individual who is a member of two or more systems will receive benefits as if retiring separately from each system, unless they are vested in both systems before January 1, 2010.
  7. Extends the “vesting” requirement of elected officials from 6 years to 10 years.
  8. Eliminates a loophole that allows individuals receiving pension benefits to return to work and receive a full salary in addition to pension benefits if the individuals are classified as “consultant” or “independent contractor.”
  9. Allows for other reforms to increase efficiency in the retirement system, such as the direct deposit of retirement benefits.

The legislation is just the beginning of important fixes to state pension laws. The bill also directs the currently-established Blue Ribbon Commission on Pension Reform to examine broader issues within the system and consider changes, such as capping large annual pension payments, eliminating termination allowances for all state employees, imposing criminal penalties for pension fraud, and restructuring qualifications for creditable service.

The Commission will make its comprehensive reform recommendations to the Legislature by September 1, 2009.

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