Cahill: Loopholes undermine sound system

Massachusetts Treasurer Timothy Cahill is chairman of the Pension Reserves Investment Management Board, which oversees investments for the $50 billion retirement fund. In an interview with Eagle-Tribune Publishing Co., Cahill talked about pressing issues facing public pensions.

Q: The Supreme Judicial Court ruled in November that William Bulger, the former president of the state Senate and the University of Massachusetts, can count his housing allowance and annuity as compensation, swelling his annual pension payment. What effect will that ruling have on the state pension system?

A: It will have a direct effect on the college presidents. There are about one dozen college presidents in the process of filing to get their housing allowance (counted toward their pension) ...

It is encouraging other people to add in their extras and call it compensation, such as the two (former) representatives that have put in for their travel and office allowance.

So it could have far-reaching impacts and serious financial impacts to all of the state pension funds if this ruling the Supreme Judicial Court made gets applied very broadly.

Q: The state pension system is widely criticized for inequities. Do you think it is fair?

A: The problem often is with the loopholes that get built into the system, where people try and take advantage. Or where other (local) retirement boards don't interpret the law very strictly. Instead they interpret it very broadly.

Ultimately, it is a fair system as long as people don't try and take advantage.

Q: So how do those exceptions affect the pension fund?

A: We've had a great four-year-run of building up our pension system. We've doubled the size of assets, practically. We are closer to fully funding than we've ever been. We're on the right path as long as the loopholes don't get bigger and bigger and bigger, and the benefits can't exceed the assets.

Q: One criticism is that pensions are based on the average of a person's highest three years' salary. Former Brockton police officer Charles Lincoln boosted his pension by taking a second job with the sheriff's department while calling in sick on his police job. Should pensions be based on your highest salary or on an entire career?

A: I don't want to penalize people who work their way up the system. Teachers or firefighters or office managers who worked their way up ... should be able to benefit from their hard work.

It's when you have the Charlie Lincolns or Billy Bulgers, who go from a $80,000 salary to $300,000 salary for the benefit of a pension. That's what throws the system off.

I'm not in favor of changing the rules for everybody. I'm in favor of enforcing those (exceptional cases) so they don't ruin it for everybody.

Q: Taxpayers contribute more than $1 billion a year to a system that lets well-connected people like former Salem Rep. J. Michael Ruane exploit their connections to win pensions. Why should taxpayers have confidence in the public pension system?

A: I share the frustration of the taxpayer who reads of certain out-sized pensions.

The truth is the average pension in the state of Massachusetts is about $25,000. Very few people are getting rich on the state pension system. As we go forward, most of those pensions are going to be self-funded, meaning people (state employees) will be using their own investments, their own assets to pay for their own pension.

What we're doing now is paying for mistakes of the past, when the system was not funded prior to 1985, when people were just putting in 5 percent and the assets weren't invested.

Within the next 20 years or less, we should have a fully funded pension system. And then the taxpayers will not be paying for that unfunded liability, and it will be funded primarily by state employees.

Q: What are you doing to change the system?

A: There are a lot of things we'd like to see changed. But it's very difficult changing pensions with legislation. You can get bogged down.

What we're trying to do is define regular compensation and also try and meet the need of women who are often short-changed on retirement issues because they take time off to raise their family or care for a loved one. They tend to retire with less years, less service and money than men.

Those are two areas where we want to see more equity, for women and for people who've had to take time off to raise a family. And we want to define regular compensation so there are no questions and, hopefully, no loopholes.

Q: Corporations have moved away from pensions to 401(k), or defined-contribution plans. Do you support such a move?

A: I don't. I believe in defined-benefit plans for all state employees. ... We have a 457 plan (the state version of a 401(k)) that we encourage employees to be in. We administer that for them, and think they should have both. But without the pension, there's no safety net.

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