McGee: Sans reform, pension plan ruinous to Lynn, others

LYNN – A projected $900 million spike in annual state pension system appropriations set to begin next year could saddle the city with $1 million to nearly $3 million in added costs.The spike is built into a funding schedule, similar to a long-term mortgage schedule, requiring the state to eliminate unfunded pension liabilities by 2030. The schedule is an attempt by the state to fully fund pension commitments to thousands of public employees that went unfunded for decades.The challenge for state and local retirement officials, including Lynn’s Retirement Board, is to find a way to keep to the schedule or extend it while taking into account big pension investment losses that hit the state over the last year.One proposal getting serious legislative attention calls for extending the schedule out to 2040.”The state is in trouble,” said state pension actuary James Lamenzo, who told Lynn board members at their October meeting how years of pension system gains evaporated last year as investments took their worst beating since the Great Depression.The state’s pension problems translate into local problems with the current city allocation for employee retirement expenses set to rise from $22 million to up to $24.7 million next July unless local retirement officials propose an alternative funding amount or the state revises the funding schedule.”It places further tension on the city’s operating budget,” said Mayor Edward J. Clancy, Jr.State Sen. Thomas M. McGee, co-chairman of the Public Service Committee, which reviews pension system funding bills, said an elongated pension system funding schedule is a sensible idea.”I’m inclined to definitely support that,” he said at a recent legislative hearing.McGee said forcing a $900 million spike in state pension funding would be devastating to other spending accounts, calling similar bumps in pension appropriations at the local level catastrophic.State officials from Gov. Deval Patrick down hope to piece together a bill by the end of the year and work with the Legislature to enact it in January, enabling the administration and municipal officials to lower the projected spikes in fiscal 2011 pension appropriations.Without changes, the state is looking at a $2.3 billion pension appropriation next year, up from $1.4 billion. Such an allocation would threaten state programs and services, top state budget crafters said.The state fiscal 2010 budget is already undergoing extensive and far-reaching changes to address a billion dollars’ worth of likely revenue declines and spending demands.If the Legislature does not revive the 2030 funding schedule, Lynn board members told Lamenzo they will come up with some sort of plan to address the increase in the current schedule by the end of the month.They are not the only local officials forced to absorb the increase. Eleven percent of the $1 million to $3 million local hike will fall on the Water and Sewer Commission and Housing Authority.The system funding crisis appears to have leapt ahead of broader pension system reforms as the most urgent legislative issue in the pension arena.Most of the state’s annual spending on pensions addresses liabilities that accrued before the reforms of the 1980s, Republican state Sen. Michael Knapik said, when the state agreed to a long-term funding schedule. Funding requirements established in 1987 initially required that each system be fully funded by June 30, 2028, 40 years after the implementation of the law.Since then, he said, system contributions for new employees have risen, reducing the strain their pensions put on the state budget. Knapik said Massachusetts was in the middle of the pack as far as public employee pension system costs and on the higher end for employee contributions.On the heels of investment losses of up to 30 percent at state and local public pension investment funds last year, the state’s unfunded pension liability rocketed to more than $22 billion on Jan. 1, 2009, up from $13.4 billion four years ear