Increased Scrutiny of Maryland’s Pension System

A Baltimore Sun editorial pushes moving towards a defined contribution plan such as a 401(k) to put the public pension fund in better standing, while a MarylandReporter.com article discusses the departure of the Maryland State Retirement and Pension System’s chief investment officer and recent critical reports of the System’s investment goals.

That idea is likely to infuriate the unions that represent state workers. For generations, they’ve argued that pensions are the reward public employees should receive for wages that consistently fall short of their private-sector counterparts. And they’re likely to point out that 401(k) accounts have lost value as much or more than pension funds in recent years.

All of that is certainly true, but Maryland’s pension woes have become too persistent — and the private sector’s retreat from pension plans too widespread — for state workers to believe that the state is not due for major changes. As of the end of 2009, the system had only 65 percent of the assets needed to meet retirement obligations. It is the kind of shortfall that has been experienced by most public pension plans across the country.

Public employees may prefer the state-guaranteed pensions of the past — and, to be fair, most aren’t getting rich off current benefits, no matter how unaffordable they’ve become to the rest of us. That may not sound appealing to those who have devoted their lives to government service, but it’s an unavoidable reality. If Maryland’s system is to be fixed, defined contribution plans are going to have to play a far larger role in the future.

Reports by the Calvert Institute for Public Policy Research and the Maryland Tax Education Fund suggest a number of changes to the State’s pension system.  Changes include shifting from defined-benefits plans, or pensions, to defined-contribution plans, like a 401(k) and using indexed investments to save the State what it spends on money managers.  The reports also question the System’s investment performance and rate of return.  More information on these reports, as well as a recent Pew Center report on Maryland’s management of its long-term pension liability, can be found in a previous Conduit Street blog post.

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