Mass. Bill Offering Pension Deferral For Cash Relief

June 3, 2003 (PLANSPONSOR.com) - Cities and towns in Massachusetts currently strapped for cash and hit with state budget cuts may soon get a reprieve in the form of a pension fund contribution deferral.

State lawmakers are planning to introduce a proposal allowing each community to suspend two-thirds of its unfunded pension liability in fiscal 2004. The deferral would also extend into fiscal 2005, when a community would be allowed to defer one-third of its total pension payment.   Massachusetts’ fiscal year starts on July 1, according to a Berkshire (Massachusetts) Eagle report.

Therefore, over two fiscal years, a Massachusetts community has the option to defer a full year’s payment of its unfunded pension liability:   the amount of money it must pay into a fund each year in order to meet the retirement benefits of both current pensioners and employees who will receive benefits in the future.   With the deferral, a city or town would then have the option to use that money as part of its operating budget, according to House lawmakers.

House officials say the pension deferment will be among the proposals included in an overall bill that would give cities and towns the ability to raise revenues or give them relief from state mandates as they struggle with local aid cuts.   Among the other options in the bill:

  • doing away with costly bidding and procurement laws
  • offering municipalities the power to raise taxes on entertainment and meals
  • allowing cities and towns to offer an early retirement incentive package.

Those Opposed

Retirees have opposed any refinancing of the pension liability, arguing that the fund must be paid off by 2030 and that state leaders should not “raid” retirement assets to pay operating expenses.

State Representative Colleen Garry (D- Dracut) who helped craft the municipal relief package, said that many of those retirees also rely on the municipal services that lawmakers are hoping to help preserve. “We’re not just saying cities and towns can do this carte blanche. Is it a policy that should be long term? No. But in these fiscal times, we want to make sure that local services will be available to people. We don’t want to balance the budget on the backs of the pensioners,” Garry said.

Governor Mitt Romney has proposed a measure that would also allow communities to offer an early retirement incentive to employees, but he did not propose allowing communities to defer their pension payment. The governor’s proposal also included:

  • elimination of civil service for all employees except police and fire
  • capping a community’s contribution for employee health insurance at 75%
  • eliminating the prevailing wage law in local projects under $100,000 and in communities of fewer than 5,000 citizens.

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