The games they play: How state, workers manipulate pension system

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July 30, 2007

Anonymous The Daily News of Newburyport Mon Jul 30, 2007, 03:53 PM EDT

'Bonus years'

Early retirement plans in 2001 and 2003 allowed state employees to add five years to their age or work history for purpose of their pension. For example, a 60-year-old employee with 30 years service could retire with the same pension as he would have earned at 65. For an employee earning a salary of $50,000, the bonus years would raise his pension from $30,000 a year to $37,500.

'Retirement Plus'

A 2000 retirement plan called "Retirement Plus" allowed long-term teachers to increase their pension by an extra 2 percent of their final average salary for each year they worked over 24 years | meaning a 12 percent boost for teachers who worked 30 years, for example. One trade-off was an increase in teacher pension contributions.

Buying time

Employees can "buy" credit for years they spent working at a variety of jobs outside the government or didn't pay into the pension system. For example, teachers can buy pension credit for time teaching at a private school or serving in the Peace Corps. Other state workers | including legislators | can get credit for years served as unpaid town officials. To buy time, employees pay what they would have paid if they had been working for the government at the time, plus interest.

One day equals one year

Elected officials are credited a full year's work if they work even a single day in a calendar year. Since legislators' terms don't expire until January, they get credit for a full year when they decide not to run for re-election or are defeated.

When it's good to be fired

Employees fired after 20 years, including lawmakers "fired" by voters, can start collecting their pensions before the usual age of 55. The same applies to employees whose positions are eliminated. A 2002 Commonwealth Magazine report found that a suspiciously high one-third of such pensions granted since 1990 went to employees who had passed the critical 20-year mark by less than a year.

The 'hockey stick'

Because pensions are based on the average of their three highest earning years, employees in low-paid government positions, like public boards, can dramatically increase their pensions by latching on to a high-paid job for three years. Employees who wangle big raises as they near retirement also pump up their pensions.

Group discount

Government employees are divided into four pension groups. Most are in Group 1. Those considered to have more hazardous jobs, like police and firefighters, are in Group 2, 3 or 4. They can retire earlier with better pensions. But among those whose jobs are classified as hazardous are district attorneys, switchboard operators at municipal electric plants and county elevator repairmen. And employees are constantly lobbying the Legislature to reclassify their jobs to move them out of Group 1. In addition, employees who manage to transfer to a "hazardous" job after years in a low-risk position get paid a pension as if they had spent their entire careers risking life and limb.

Penalizing state employees

Some distortions in the pension system hurt workers. For example, some who keep working after they've "maxed out" their pensions at 80 percent of their highest earning years lose money because they have to keep paying into the fund while receiving no pension increase, unless they get a raise. Younger workers can also pay a price. Workers hired since 1996 pay more into the pension fund than earlier hires. In some cases, the state will pay out less in pensions than it receives from their pension payments and investment earnings on those payments.

The state also makes money on workers who don't stay on the job. Employees who leave after less than five years get a refund of their pension contributions but no interest, in effect giving the state a zero-interest loan. Those who quit after five to 10 years get a refund with a small amount of interest, but no pension.

Source, "Public Pensions: Unfair to State Employees, Unfair to Taxpayers," 2006 White Paper by Ken Ardon for the Pioneer Institute for Public Policy Research

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