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Globe Editorial

Don’t add to pension problem by upping cost-of-living raises

September 19, 2011

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MASSACHUSETTS NEEDS another round of public-pension reforms. Though Beacon Hill has made progress in curbing the worst abuses of the system, public-pension systems still have billions of dollars more in liabilities than they have money to pay for them. Bond rating agencies have made it clear that unless Beacon Hill comes to grips with the problem, the Commonwealth’s ability to borrow money will suffer. And while the bill that cleared the Senate Thursday will help in several important ways, it also exacerbates the problem in others.

On the upside, cuts in the Senate measure will save $9 billion over 30 years, according to calculations by the Massachusetts Taxpayers Foundation. The changes would include raising the minimum retirement age for most new public employees from 55 to 60, raising the full retirement age from 65 to 67, reducing early-retirement benefits, and calculating a worker’s pension in a more conservative way. Yet the bill contains provisions that would cost billions of dollars, such as reducing contributions for some long-serving workers and making all retired, current, and future retirees eligible for larger cost-of-living increases.

This last provision illustrates a deeper problem: Lawmakers have generally maintained that benefits for current employees must never be diminished - not by a penny - but have been willing to increase them time and time again. Worse yet, while the savings from the other provisions in the bill will accrue only over time, a greater cost-of-living increase will cost money right away. Without such a provision, though, the reforms in the bill won’t be palatable to the public-employee unions that so many lawmakers rely upon for support.

Then again, many unions opposed the bill anyway. Deferring to special interests is the wrong impulse, because the pension arithmetic could get much more daunting. The main pension fund for state employees assumes a higher rate of return on its investments - more than 8 percent - than some analysts think it can realistically achieve. If it falls short, the choices facing the Legislature will be that much starker.

Which is all the more reason lawmakers shouldn’t add to the state’s pension obligations for political reasons. When the House takes up the measure, it should cut out the pension enhancements - and go for the savings alone.