MA Teacher Retirement System (and WI a bit)

H35 provides for these amendments to the MA teachers retirement system by Gov. Duval Patrick:

An Act Providing for Additional Pension Reform and Benefits Modernization
This legislation filed by Governor Patrick proposes further pension reforms to achieve the following objectives:

  • Update the system to reflect demographic changes, such as the fact that people are living and working longer;
  • Eliminate abuses, through anti-spiking measures, extending the number of years used to calculate pension benefits, and increasing scrutiny of legislation benefiting individual employees; and,
  • Address fairness issues, through updating purchase of creditable service and buyback provisions, eliminating early retirement incentives, pro-rating benefits based on employment history, eliminating the right to receive a pension while receiving compensation for service in an elected position, and allowing retirees who married a person of the same sex within the first year after it became legal to change their retirement option in order to provide a benefit to their spouse.

Most of the provisions in the bill would apply to new members of the retirement system.

H1 (section 37):Governor Patrick recommends a 3% cost of living adjustment (COLA) for retired members of the state and teachers’ retirement system as part of his FY2012 state budget. The COLA will be applied to the first $12,000 of the retirement benefit, for a maximum increase of $360 per year or $30 per month.

From the annual report of the Mass. Teachers Retirment System finacial report: MTRS statement demonstrates the heavy use of equity and other non-fixed income assets to generate returns, which make for volatility.

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New teacher’s pay in approximately 10% of salary.

I believe in 2008 the MTRS reported a 29% drop in ‘value’ of its assets:
$ 25,318,713,892 2007

$ 17,177,957,406 2008

$ 19,311,587,953 2009

$21,262,462,000 2010

Via Andrew Leonard at Salon comes this quote from the CEPR and Dean Baker

On July 1, 2010, the S&P 500 was already more than 11 percent higher than its July 1, 2009 level (from 987 on July 1, 2009 to 1101 on July 1, 2010). Most funds use the stock market’s closing value at the end of the fiscal year as the basis for determining the valuation of their assets. Of course they also use an average, so the valuation would not simply reflect the market value at the end of the fiscal year. However, with the market having already risen substantially from its low (the S&P 500 had risen another 19 percent to 1293 by January 10, 2011), it is likely that pension valuations based on current and future market levels will show smaller shortfalls. In other words, a substantial portion of the shortfalls that were reported based on 2009 valuations have likely already been eliminated by the rise in the market.

MA Massachusetts Teachers 0.12% (unfunded liabilities as a per cent of expected revenues) 1/1/2010

WI Wisconsin Retirement 0.00% (unfunded liabilities as a percent of expected revenues) 12/31/2009

Of course projected revenues can be argued at another time.