Retirees Blast Mass. City Retirement Board For “Criminal” Cutbacks

Board room

Retirees, labor group leaders and even a city councilman are upset at the Leominster, Massachusetts Retirement Board after the Board voted to eliminate a cost-of-living increase in pension payments for the fifth straight year. Reported by the Sentinel and Enterprise:

“We think it’s unconscionable that our local retirees haven’t received a (cost-of-living increase) which they need,” Shawn Duhamel, the legislative liaison for the Retired State, County and Municipal Employees Association of Massachusetts, said Wednesday. “They are largely reliant on their pension as their sole income, so not having a cost-of-living increase for five years really hurts retirees, and we think it’s unnecessary.”

Out of 105 retirement systems in the state, Leominster is the only community to deny a cost of living increase in recent years, according to the association’s monthly newsletter. Somerville is the only other community to miss a cost of living increase dating to 1998.

Mayor Dean Mazzarella defended the retirement board’s decision not to increase benefits while it works to reinvest and fully fund its post employment financial requirements.

Critics have lashed out, in part, because the COLA denial comes in the wake of the Board’s above-average investment returns and the recent decision to lower its assumed rate of return.

The Board’s investments returned 21 percent in 2013, and the assumed rate of return was lowered from 6.5 percent to 5.5 percent. From the Sentinel and Enterprise:

If the retirement board maintained projects of 6.5 percent rate of return based on 2013 earnings the city’s post employment benefits obligation would be fully funded, Duhamel said.

Leominster should be proud of its long success, which is outperforming almost all others in the state, but instead of sharing the wealth with retirees is taking a different approach, Duhamel said.

The retirement board’s projection of lower returns puts a bigger burden on taxpayers to fund the program, Duhamel said.

The board’s rate of return on investments should justify a cost-of-living increase, said at-large City Councilor Bob Salvatelli.

“With that kind of impressive return we’re making off this thing, and not giving retirees a 3 percent raise, is criminal,” Salvatelli said. “It’s not even funny; it’s criminal.”

According to city estimates, giving retirees a 3 percent cost-of-living increase would cost the city $145,000 up front and would cost $900,000 over the life of the retirees who received it.

Survey: Most Expect to Keep Working During Retirement

beach vacation

For most people, retirement brings to mind images of beaches, hammocks and long days devoted to hobbies instead of work.

In fact, more work is probably last on the list of concepts associated with retirement. Or is it?

A survey by Consumer Reports found that the overwhelming majority of people close to retirement actually expect to keep working in some capacity after they’ve officially “retired”. From Consumer Reports:

Eighty-three percent of pre-retirees in our survey expected to work full- or part-time.

The phenomenon of a gradual retirement isn’t so new. Each year since 2007—before the economic downturn—about a quarter of our fully retired respondents have reported starting their retirement by working less, not stopping entirely. They reduced hours at their main job, worked part-time at a new one, or started a business. They worked for a median of four years. The most satisfied partly retired respondents worked 9 hours or less per week.

Laboring longer provides more income and delays when you begin withdrawing from savings, allowing more time for growth. And for many, it keeps those synapses firing.

It’s interesting to note that although 83 percent of respondents said they expected to keep working, past data from the same survey shows only 25 percent actually do.

Perhaps part of the reason for that disconnect are the implications that working has for other retiree benefits—sometimes, more work means less Social Security and pension benefits:

If you haven’t reached full retirement age but have claimed your benefit, Social Security holds on to $1 for every $2 you earn above $15,480. When you reach full retirement age, it gives that deferred amount back, adding to your monthly benefit.

Working shorter hours at the same employer could affect pension benefits or employer-based group health insurance, so check with human resources before you commit to part-time work.

The survey data is part of a larger piece over at Consumer Reports about how to “Stop Freaking Out About Retirement”. It’s worth a read.

Retirees Grapple With Tough Question: Should Pension Payments Be Taken Monthly Or As Lump Sum?

retirement fund

Many people facing retirement ask their financial advisor the same question: is it more advantageous to receive a pension in monthly payments or to take the entire pension as a lump sum to be put in an IRA?

There are big implications attached to either option. And the stakes are high; once you opt for a monthly payment there is no reversing course. As advisor Kevin McKinley writes:

Once the client submits the request to receive the monthly pension payments, there is no turning back. He or she can’t change the time and beneficiary calculation options down the road, and it’s virtually impossible to get an “advance” on future payments.

That could be a problem in several instances, including a need to cover a large emergency expense, the desire to help out a family member, or the emergence of a more attractive investment opportunity.

A big part of the decision to take monthly payments should be how confident you feel in your pension fund’s investment portfolio. A retiree, or his/her financial advisor, might be able to construct an investment portfolio that makes the retiree more comfortable taking the lump sum:

Since the portfolio has to be managed on behalf of thousands of recipients, plus other interested parties, it’s a safe bet that the pension plan’s managers will have to make decisions that may go against what individual clients would like done with their portion of the money.

You can probably tailor a portfolio that is better aligned with the client’s needs and risk tolerance. You certainly can design and manage one that is much more flexible and transparent than if it were left in the pension.

And then there are the tax implications that come with both options, as McKinley writes:

A pension payment is generally going to be fully taxable as ordinary income. But if the funds are instead rolled over into an IRA, the client has several opportunities to reduce his income tax bill each year.

He can take just enough to keep him under a particular federal income tax bracket. Or, he can roll over some (or all) of the account into a Roth IRA, paying the taxes now to hopefully reduce what he pays down the road.

Another option is to take nothing at all and avoid the taxes completely for the time being. The client will likely have to take required minimum distributions after reaching age 70½, but those won’t greatly exceed what a pension payment might otherwise be.

The article notes that, when it comes down to it, retirees need to ask themselves two questions: Are they confident their pension is going to exist as long as they’ll need it?

And, are they confident in their pension fund’s ability to invest and manage their money?

If a retiree lacks confidence in both of those questions, perhaps a lump sum would offer better peace of mind.

Thousands of Early Retirements Coming In Indiana As New Law Takes Effect

Early retirements in Indiana in wake of new pension tweak

A new law has pushed forward the retirement plans of thousands of Indiana workers, who may retire early to try and avoid lower interest rates on their monthly retirement benefits.

One state system, the Indiana Public Retirement System, said it expects 2,000 more retirements than last year, which amounts to a 25 percent increase. From the Lafayette Journal and Courier:

A law, passed by the General Assembly this spring, lowers the interest rate retirees will be paid if they choose to annuitize some of their retirement benefits, taking monthly payments for the rest of their lives rather than a lump sum.

For employees whose last day of work is before the end of August, the rate is 7.5 percent. It’ll drop to 5.75 percent thereafter and keep dropping until it’s tied to the market rate.

The change is supposed to prevent a changing world from bankrupting the system, according to INPRS documents. Concerns stem from longer life expectancies and the system’s return on investment, which is lower than the current interest rate.

While system administrators say the lower rates are necessary, the change has inspired government workers who were nearing retirement to move up their plans.

Of course, nobody knows for sure how many of those extra retirements were spurred specifically by the new law. From JC Online:

Local officials says it’s hard to judge the exact impact the new law has on retirees.

In the Lafayette School Corp. for example, 37 teachers retired this year, more than the typically 20 to 25 teachers, said assistant superintendent John Layton. But without asking each one point blank why they’re retiring, the reasons prompting that retirement aren’t always clear.

[…]

West Lafayette city human resources director Diane Foster said the change has had minimal impact on the city. The only retiree to cite that as a reason is soon-to-retire parks and recreation superintendent Joe Payne.

“Other than that I’m not aware of any other employees who have made that decision based on this,” Foster said. “It could be that if an employee is already considering retirement this may be just one more factor that could help them go ahead (and do it).”

It’s unclear how the change is impacting Lafayette. Human resources director Kim Meyer said retirement data wasn’t immediately available.

Rhondalyn Cornett, president of the Indianapolis Education Association, told the Lafayette Journal Courier that a retiree could see significantly less benefits under the new law—to the tune of $5,000 a year.

With that number in mind, it’d be surprising if the new law wasn’t at least a factor in most of these early retirements.

 

Photo by www.aag.com via Flickr CC License