Romney favors pension system changes

by Daniel J. Fitzgibbons, Chronicle staff

mong the myriad proposals for revamping state government floated in recent weeks by Gov. Mitt Romney is a bid to overhaul the Massachusetts pension system and replace it with a 401(k)-style plan.

     Aimed at reducing future state spending, the proposed phaseout of the state retirement system will be submitted later this spring, according to Romney administration officials. There are currently more than 166,000 state employees and teachers enrolled in the retirement system, which bases pensions on years of service and earnings.

     The main thrust of the proposed reform is to reduce the state's unfunded pension liability, which has grown from $4.8 billion to an estimated $12.5 billion this year.

     Under the Romney plan, the existing system would be replaced by a plan through which public employees would be required to contribute to a pension plan that would be invested in stocks and bonds. Such plans are subject to market fluctuations, but are essentially self-funded by individual employees.

     While many private employers contribute to 401(k) plans, Romney administration officials said it has not yet been determined whether the state would match employee contributions.

     Although administration officials have indicated that the new system would be grandfathered in for new state workers, the plan is already under attack by public employee unions. The proposal is also expected to meet stiff opposition from legislators.

     Teachers and union officials this week blasted the Romney proposal, saying it will deter people interested in public service careers. In response, the administration said the change will encourage private sector workers to enter public service without committing to long-term employment to qualify for pension benefits.

     Only four states have adopted similar plans and none have implemented those changes since the stock market declined two years ago.

     Meanwhile, the Romney administration is also pitching a plan to transfer $180 million in surplus state land to the pension fund in lieu of a cash contribution.

     Testifying before the House and Senate Ways and Means committees on March 7, Secretary of Administration and Finance Eric Kriss conceded that the specifics of the land transfer have not been worked out or even discussed with pension fund managers.

     At the hearing, lawmakers questioned whether the pension fund could receive market value for sold surplus property.