MTA head responds to pension column
Says defined benefit system would cost taxpayers more
July 18, 2011
Stephen Eide’s argument for switching public employees in Massachusetts from a defined benefit pension system to a defined contribution system (“Time for Real Pension Reform,” July 5, 2011) ignores one major impediment: Doing so would cost the taxpayers of Massachusetts hundreds of millions of dollars a year without improving the benefits provided to retirees.
In his 1,000-plus word article on the Massachusetts pension system, Eide fails to describe the most basic facts about our system:
- Massachusetts public employees, unlike all private-sector employees and most public employees in other states, do not participate in the Social Security retirement system.
- Massachusetts public employees pay more for their pension benefits than most public- and private-sector employees in the country.
If Massachusetts eliminated the defined benefit pension system, employees would have to be enrolled in Social Security and then, under Eide’s proposal, would receive a 401(k)-style benefit on top of that. Let’s look at how costly it would be to make that change just for the 80,000-plus teachers and school administrators who participate in the Massachusetts Teachers’ Retirement System.
Teachers pay, on average, about 10 percent of their salaries toward their own pension benefits, and the Commonwealth pays about 2 percent. At that rate, they fund more than 90 percent of the costs of their own pensions, on average. If the MTRS were eliminated, teachers and the Commonwealth would both pay 6.2 percent of payroll into Social Security. According to the MTRS, that change would cost the Commonwealth $220 million a year.
Next, the Commonwealth would have to contribute, say, 3 percent of payroll toward a 401(k)-style plan, a typical contribution rate for large employers. That would cost the taxpayers another $165 million a year.
The grand total for replacing the MTRS with a pension system comparable to what private-sector employees receive would be $385 million, or more than a third of a billion dollars a year. That doesn’t even count the costs of making similar changes for all other municipal and state employees. The annual costs could easily exceed $1 billion.
Eide did get one thing right. Changing the system in this way would do nothing to get rid of the unfunded pension liability that the Commonwealth was responsible for creating in decades past.
Eide’s proposal would be so expensive that no credible politician on either side of the aisle has seriously recommended going this route. If any do make such a proposal in the future, they had better be prepared to explain how they plan to pay for it.
Paul Toner is the president of the Massachusetts Teachers Association