What Marblehead spends on retirement

A pension fund holds and invests money set aside to pay future retirees. When markets drop, the fund can be left holding less than the benefits it has already promised. The 2008 financial crisis did exactly that to public pension funds across Massachusetts, including Marblehead's. Once a system falls behind, state rules require it to pay the shortfall back on a fixed schedule, much like an amortized loan, which is why the annual appropriation has kept climbing even as the underlying benefits stayed the same.

Marblehead's schedule, set by its most recent actuarial valuation, raises the total pension appropriation 8.6% each year through FY35, with a final amortization payment in FY36. After that the catch-up portion goes away.

Marblehead's pension system covers town and municipal employees but not teachers. Teacher pensions run through the MTRS (Massachusetts Teachers Retirement System), which the state funds directly, so they cost the town general fund $0.

That is not the same as free. The state pays for MTRS out of tax revenue that Marblehead residents also contribute to, so the cost lands on the same taxpayers by a different route. It simply does not run through the town budget on this page.

Their health insurance is a different story. Retired teachers generally stay on the town's health plan, so while their pensions are the state's cost, their retiree health is part of the town's bill. It shows up in the OPEB figures on this page: the town's retiree-health plan covered 748 retirees as of mid-2025, more than double the 339 in the town pension, and the gap is largely school employees whose pensions run through the state but whose health coverage does not.

Membership is mandatory for full-time town employees. They contribute 9 percent of their regular pay, a rate set by state law, plus an extra 2 percent on pay above $30,000, deducted from every paycheck.

A worker must complete at least 10 years of service to qualify for a lifetime pension; leaving earlier returns only the worker's own contributions with interest. The pension is then a formula: average salary times an age-and-job factor times years worked, capped at 80 percent of the highest few years' average salary.

State law makes the pension mandatory for eligible town employees, so new hires enroll automatically and the town cannot offer a different plan in its place. A 2012 state reform did trim the terms for anyone hired on or after April 2, 2012: they must reach a higher age to retire at the full rate (age 60 rather than 55 to become eligible, and the top benefit rate at age 67 rather than 65 for general employees), and their pension is figured on a five-year salary average instead of three.

Federal law lets state and local governments keep employees out of Social Security if they provide a pension at least as generous. Massachusetts does that: town employees pay no Social Security tax on this work and earn no Social Security credit for it, and the Chapter 32 pension takes its place.

For decades two federal rules, the Windfall Elimination Provision and the Government Pension Offset, reduced any Social Security a public retiree had earned from other work or as a spouse. Both were repealed by the Social Security Fairness Act, signed January 5, 2025, for benefits payable after December 2023.

Retiree health, dental, and life insurance are offered under state law (Chapter 32B, Section 20) to employees who retire from the town, along with their dependents. Eligibility tracks the pension: a worker generally has to reach the required age and years of service, retire, and carry the coverage forward. How much the town pays toward the premium, versus what the retiree pays, is set by collective bargaining and town ordinance. In practice retirees pay 17 to 35 percent of the cost of pre-Medicare plans and 25 percent of Medicare-related plans, and the town covers the rest.

Marblehead's audited statements report a pension expense of $11,402,956 for FY25 under the government accounting rule known as GASB 68. That is more than double the roughly $5.4 million the town actually appropriated into the pension fund that year.

The two numbers measure different things. The appropriation is cash out the door. The GASB 68 expense re-measures the plan's investment returns and assumptions each year and books the change as an accounting cost, which is why it lurches around: it was about $14.6 million in FY20, $16.0 million in FY21, and $10.4 million in FY22. Because it is driven by market swings, it is not a spending figure and does not tell a resident what the pension costs. The number the town budgets and pays is the roughly $5.4 million appropriation.

Setting money aside in advance lets investment returns cover part of a future obligation, so today's taxpayers pre-pay some of tomorrow's promise. When a promise is unfunded, none of that happens. Each year's retiree health premiums are paid from that year's taxes, and the roughly $142 million already promised is a bill that future budgets absorb as it comes due. Deferring it does not cancel it; it moves it forward in time and forgoes the investment returns that pre-funding would have earned.

What the $142 million (and the pension's $40 million) actually measures is worth being precise about. It is a present value: the amount, in today's dollars, needed to cover the benefits people have already earned for years already worked, current employees and retirees alike, minus what has been set aside. It is not a bill due now, it is paid out over decades, and it does not count the future years current employees have yet to work or anyone the town has not hired. As people keep working and the fund earns returns, both the promise and the savings grow, and the gap between them shifts each year.

A pension and a 401(k) split the risk differently. The pension is a defined benefit: the town promises a set monthly amount for life and carries the investment risk, which is why a bad market can leave it owing more, as happened after 2008. A 401(k) is a defined contribution plan: the employer pays in a fixed amount, and the worker's benefit is whatever the account grows to, so the worker carries the investment risk.

Marblehead cannot make that switch by itself. Chapter 32 is state law and makes the defined-benefit pension mandatory for municipal employees, so a change would run through the Legislature, not Town Meeting. A switch also would not touch the roughly $40 million pension gap or the $142 million retiree-health promise, both already earned for past service. Closing a pension to new hires can even raise required payments in the near term, because the existing shortfall then has to be paid off over a shorter stretch of years.

Massachusetts lets municipalities establish a dedicated OPEB trust and appropriate money into it each year, where it can be invested for the long term. Some communities do this and have built funded ratios well above single digits; many others fund little or nothing and pay retiree premiums year to year, as Marblehead does. The specific peer figures are in the comparison further down this page.

The pension schedule is not a local choice year to year: the Marblehead Retirement Board and PERAC (Public Employee Retirement Administration Commission) set the funding schedule through the actuarial valuation, and the town appropriates what that schedule requires. Retiree health is where local discretion lives: whether to appropriate money into an OPEB trust, and how much, is a decision Town Meeting makes.