While the Public Employee Retirement System is not overly generous for typical employees, it is characterized by exceptions, ambiguities, and loopholes that allow some of them to abuse the system and collect unwarranted benefits, resulting in tremendous cost to the state and ultimately to taxpayers. The root of these problems is that the calculation of benefits is not based on the simple concept of contributions but the complicated interplay of four factors— years of eligible service, maximum three years of compensation, “group” or job classification, and retirement age.

The system is fundamentally flawed: the structural weaknesses and loopholes result in a system that can reward employees arbitrarily and allows the Commonwealth to push costs onto future taxpayers. Moreover, the complexities of the system reduce transparency.  Many loopholes and exceptions are not tracked by any oversight body making a determination of the total cost of these unfair practices is an imprecise science.  However, it is estimated that these loopholes raise the state’s current liability by more than three billion dollars and increase the required annual payment into the pension system by more than $125 million, a number that will grow over time. The bulk of this cost comes from specific retirement programs, but the wide array of other gaming techniques adds millions more in annual costs.

While the list of problems is long, two major reforms could address the most serious abuses: enacting pay-as-you-go language to require full funding of legislative changes, and tying benefits more closely to employee contributions. These modifications, combined with other minor changes, would dramatically improve the system.

9.a    The legislature should adopt pay-as-you go legislation for benefit changes

9.b    The Legislature should reform the PERS benefits structure to make it fair and affordable for the Commonwealth

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