Retired employees of the city of Boston have been relatively lucky in the recent downturn, receiving 3 percent cost-of-living increases on the first $12,000 of their pensions even in years when Social Security benefits — the prime source of income for many private retirees — have been flat. Now, however, some political leaders want to bump up the cost-of-living raise for retired city workers even further. Mayor Menino wants to raise the annual increase from $360 to $390, while City Council President Steve Murphy is pushing a much larger $90 hike. In better economic times, giving an extra boost to city retirees would be honorable; this year, however, it's too much of a stretch.
The traditional justification for such hikes is that city pensions must serve as the equivalent of both the Social Security and employer-funded pensions that private-sector workers receive. But defined-benefit pensions are increasingly rare in the private economy; only about 20 percent of private-sector workers in New England have them. Instead, most private workers have to fund their own retirements through 401(k) plans, often with only modest contributions from employers. Meanwhile, the average annual Social Security benefit is $14,760.
For Boston's 14,400 municipal retirees, the average pension is $33,000. But checks are considerably higher for recent retirees: The average pension for city workers who retired in 2009 was $49,480, according to the Boston Municipal Research Bureau. Both numbers compare favorably with the average state-worker pension of $27,423. And state retirees, like retired municipal workers, are ineligible for Social Security.
It's especially hard to justify an extra pension hike based on the city's fiscal situation. Boston currently has a $1.37 billion unfunded pension liability; on the current schedule, it won't fund that fully until 2025. And after that liability is retired, the city needs to get serious about funding a $3 billion liability for health care and life insurance benefits for its retirees — benefits private-sector workers usually don't get. Currently, most of those benefits are funded out of the city's operating budget, on a pay-as-you-go basis. Although the proposed pension increases seem small, they add up. Even the amount that Mayor Menino wants will add another $21.4 million to unfunded liability by 2025; if Murphy's proposal is approved, it would increase the pension liability by $63 million.
If Boston were like many other cities, where pension levels have been frozen for several years, it would be reasonable to raise pension outlays. But even in the recession, pension payments went up. It would be irresponsible to boost those annual increases further until both the city and the private economy are on firmer footing.