Maryland pension commission recommends shifting burden to employees

Posted: 2:09 pm Mon, December 20, 2010
By Nicholas Sohr
Daily Record Business Writer

ANNAPOLIS — A state commission on Monday presented a broad outline to reduce retirement and health care costs and shift more of the burden on Maryland’s employees, retirees, and county governments.

The recommendations will be forwarded to the governor and General Assembly before the start of the legislative session Jan. 12. But, the Public Employees’ and Retirees’ Benefit Sustainability Commission will be back in 2012 for another go at finding solutions to keep the massive and underfunded benefits system afloat.

“The likelihood of completing this work by sine die [the last day of the session] is extremely unlikely,” said commission Chairman Casper R. “Cas” Taylor Jr., a former speaker of the House of Delegates.

Taylor described the commission’s work as “the beginning steps” of restoring the health of the retirement and health systems.

Union officials, who would have the opportunity to push back against most of the changes at the bargaining table, decried the proposals.

Patrick Moran, executive director of the American Federation of State, County and Municipal Employees chapter in Maryland, said the commission’s report is “very worrisome.”

“You’re expecting employees to pay more, and at the end of the day, receive a lot less,” he said.

Moran said the commission’s deliberations have not yet affected his negotiations with the state.

The commission declined to make specific recommendations about what to do about pensions, recommending only that the Legislature study how it could reduce benefits in the combined contribution plans. They had considered offering employees a menu of retirement plan options, including a defined contribution plan — like a 401(k) — with a guaranteed rate of return and defined benefit plans with reduced benefits or higher employee contributions.

The commission did, however, suggest the state pay cost of living adjustments contingent on the pension fund’s yearly performance, make employees serve 10 years before joining the system and adopt a “rule of 92,” meaning an employee’s age and time of service would have to total 92 in order to collect a full pension.

The savings from all the changes would be pumped back into the pension fund to return it to the 80 percent funding level considered healthy for public systems in 10 years. The pension fund has about 65 percent of what it needs to cover future liabilities.

“If you try to get to total sustainability too quickly, you’re going to wreck the bus again,” said Taylor. “If we can get to 80 percent in 10 to 12 years, we can declare victory. It’s not going to all be done at once. It can’t be.”

The commission recommended the counties shoulder part of the cost of teachers’ pensions. The model supported by the commission would have the counties and state split evenly the cost of teacher pensions, which are now paid by the state, and social security, paid fully by the counties. The change would phase in a shift of about $250 million annually to the counties over at least three years, with wealthier jurisdictions paying a larger share.

A similar cost-sharing move was pushed this year by the state Senate, but was stymied by opposition in the House.

John R. Woolums, a lobbyist for the Maryland Association of Boards of Education, warned “the full freight of bearing that additional cost could come from existing education budgets.”

The commission said Maryland should reduce its health care contributions to align it with other states. Changes recommended by staffers included higher co-pays and premiums, and a requirement that spouses of state employees be insured through their own employers if they are able to do so.

A 10 percent cut in the state’s health care costs would save the state $100 million annually, and cost employees between $1,000 and $1,250.

The commission also recommended Maryland lower its contribution to health care for retirees’ spouses and dependents, raise service requirements to qualify for retiree health care to 15 years, and craft a plan to limit coverage for retirees if costs become unsustainable.

“We have a $17 billion liability that’s 2 percent funded,” said commission member George A. Roche. “At what point to we begin to take action? I think we should be getting a plan together now.”

One option discussed by the commission was to offer retiree health care only to those who are eligible for Medicare, which would allow the state to share much of its costs with the federal government. Another recommendation, to require all Medicare-eligible retirees to get their prescription drug benefits through the program in 2020, could save the state $5.5 billion in future obligations, according to legislative analysts.

Some commission members resisted taking a hard line on limiting health care access.

“Government is not business,” said former Sen. Barbara A. Hoffman. “Government has different obligations to its employees.”