State’s pension costs on the rise

By Matt Carroll
Globe Staff / March 20, 2011

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The number of state retirees collecting pensions of at least $100,000 has climbed more than 20 percent in the past year, jumping from 145 to 176, with the top pensioner receiving more than $240,000.

State Police retirees represent the largest group of six-figure earners, with 50, followed by faculty and administrators from the University of Massachusetts Amherst at 42, and employees of the University of Massachusetts Medical School in Worcester, at 19.

Eight years ago, only 33 state employees made more than $100,000, but as state salaries have increased through the decades, so have pensions, which are calculated in part based on employees’ income in their three highest-paid years of work.

“There is an urgent need for comprehensive pension reform,’’ said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation. “Soaring pension and health care benefits are cannibalizing municipal services.’’

The cost of pensions and health insurance for public employees and retirees has grown dramatically over the past decade, rising from 13.5 percent of city and town budgets a decade ago to 21 percent, Widmer said. He added that costs are projected to top 30 percent by 2020.

The state retirement progam, which covers about 53,000 retirees and deceased retirees’ survivors, costs the state $1.4 billion a year. The fund has $19.3 billion in assets and employees contributed $411 million last year.

But a larger, long-term problem is that the state does not have nearly enough reserves to pay this group in future years, a common problem for public pension funds across the country. The state pension fund currently has an unfunded liability of $4.9 billion in estimated pension costs for current retirees, which is actually down from $6.7 billion in 2009 because the rebounding stock market fueled better returns on investments.

And the state pension fund is part of a much larger $31 billion in unfunded liabilities for all Massachusetts public workers, covered by the 105 pension boards scattered across the state.

Pensions are determined by age, years of service, and pay, and the vast majority are not enormous: The average annual payment is currently about $28,300. Employees pay up to 11 percent of their salary to help fund their retirement. State employees do not receive Social Security for their work in the public sector.

The state has enacted some pension reforms, although the effects will take years to be felt. Governor Deval Patrick is pushing more changes, which would raise the minimum retirement age from 55 to 60 for most future state and local workers, eliminate early-retirement incentives, and calculate pension payouts by using a longer time period. A legislative hearing on the bill is scheduled for April 7.

Past reforms have limited pension payouts at $125,000, but that only applies to employees hired after Jan. 1, 2011.

Most public pensions are funded by employee contributions, investment earnings by the retirement board, and taxpayer contributions. However, the UMass medical school pays directly toward the pensions of its retirees rather than billing state taxpayers, according to spokesman Mark Shelton. In 2009, the school paid the state pension board $41 million for pension and health obligations.

Dr. Aaron Lazare, a 75-year-old former longtime dean and chancellor at UMass Medical, leads all retirees with a pension of $242,441, the largest in recent history.

Lazare, who retired last year after 27 years, was surprised that his pension was that high.

“I’m not a math genius; I’m a psychiatrist,’’ said Lazare, who is also the author of the book “On Apology,’’ which explores how saying sorry can heal relationships. Previously, Dr. Arthur Pappas, also of the UMass Medical School, had been the highest paid pensioneer at $233,078.

Matthew Carroll can be reached at Follow him on Twitter at @globemattc.