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Pension official: Reforms will bolster retirement system

OCEAN CITY— A state pension official told a gathering of local government officials that reforms in the last three years will place the state retirement plan on sounder financial footing even as she cautioned that projections made this year may be subject to changes.

Anne E. Gawthrop, director of legislative affairs for the Maryland State Retirement and Pension System, told a gathering of local officials at the annual Maryland Association of Counties convention that sweeping changes made in 2011 and 2012 will improve the system.

“There was very little that wasn’t touched,” Gawthrop said of the 2011 and 2012 changes.

The $45.4 billion state system that covers 331,000 active and retired state employees is not without its challenges.

In fiscal 2009, the plan suffered $8.1 billion in losses — about 20 percent of the trust fund. Just two years later, state contributions to the plan had grown to $1.4 billion and were projected to more than double to $3.1 billion in nine years.

The legislature approved changes in 2011 that amended the amount of service time employees needed in order to be vested in the plan as well as increasing contribution rates for workers. Savings from that plan were to be used to help pay down the unfunded liability.

“I don’t know of any state that did reform that reinvested the savings back into their respective plans,” Gawthrop said.

A year later, the legislature approved a shift of teacher pension costs to local governments.

State government would continue to set pension benefits for teachers, and local school boards would still be responsible for setting the salaries that drove the retirement benefits. But local governments, which fund the school system and pension payments, would shoulder the costs. In fiscal 2013, those costs were about 50 percent or $136.6 million. By 2016, when the plan is phased in at 100 percent, that amount is estimated to reach nearly $254.8 million.

None of that will address the unfunded liability for a system that is currently funded at the 65 percent level.

Gawthrop told the gathering that there is reason to be optimistic about the changes and said recent actuarial estimates show the plan reaching 80 percent funding by 2025. Still, she added a note of caution:

“These are only projections,” Gawthrop said. “It’s a little like looking into a crystal ball.”

Del. Susan R. Krebs, R-Carroll County, was less optimistic.

“I don’t think victory is 79 percent by 2024,” Krebs said. “It’s the right direction, but victory is 100 percent funding.”

Krebs said ultimately what the state did in terms of reforms was really about shifting responsibility for the system to other jurisdictions who are cash-strapped and unable to control costs.

“The state simply pushed the problem to someone else rather than fix it,” Krebs said. “The counties have zero control.”