, Salem, MA


August 27, 2013

Our view: Public pension shortfalls threaten municipal solvency


In so many ways, Lawrence is the sick man of Massachusetts. But even comparatively wealthy communities have their pension problems: Salem, Beverly, Peabody, Danvers, Swampscott and the Essex County Retirement System earned failing grades for their “funded ratio,” which measures the percentage of current and future pension costs that retirement boards have covered.

These pension shortfalls are a sword hanging over the heads of taxpayers. If the economy remains stagnant or worsens, the rates of return on investments on which these projections depend may not pan out.

A typical private-sector worker must invest his own funds in a 401(k) or other savings plan to provide for his retirement. The private-sector worker may get a small contribution from his employer, as well — if such programs survived the recent economic downturn. In such a “defined contribution” plan, the investment risk is on the worker.

But public-sector workers enjoy “defined benefit” plans, under which for a modest contribution from each paycheck, the worker is guaranteed a certain payout after reaching age and years-of-service markers. For most public-sector workers, this results in a modest pension. But too often we read of the public employee who “retires” at 55 and receives 80 percent of his salary for life, only to go on and earn another paycheck for the next 10 years in the private sector.

This system is unsustainable and may drive some municipalities into bankruptcy. Taxpayers cannot continue to foot the bill for such irresponsibility.

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