The Public Employees’ and Retirees’ Benefit Sustainability Commission held its first meeting on October 7 before a packed room in the House of Delegates office building. In his opening comments, chair of the Commission and former House Speaker, Cas Taylor, stated they have an enormous amount of studying to do and an appropriate amount of time to do it. He did express skepticism however, over whether the Commission will have proposed changes for the 2011 General Assembly Session.
Senate President Thomas V. Mike Miller sat through some of the meeting and was given the opportunity to make introductory remarks. President Miller said that pension system costs have increased significantly over the past 5 years. He stated that the corridor method is a problem and that investments have declined, but he also made reference to the State funded teacher’s pension system when he commented, “Can you imagine someone else determining salaries and you have to pay for it?” He said that the Senate tried to address this issue, but the efforts to have the counties pick up a portion of the teacher pension costs failed in the House. He continued by saying, “Maryland is the only state to give income tax up to the counties.” He further stated that Maryland has a high tax rate because of the piggy back tax.
The bulk of the meeting was spent with the Department of Legislative Services (DLS) providing briefings which compared public and private compensation, and pension benefits of other states. Interesting findings include:
- 23 state have set retirement age at 65 or higher – retirement age of Maryland’s employee and teacher pension systems is 62
- Maryland’s employee and teacher pension systems provide an unreduced retirement allowance at 30 years of service, regardless of age – a majority of other states do not provide this benefit
- Maryland’s employee and teacher pension systems trend toward the median with regard to employee contribution rates – 17 states have employee contribution rates over 5%
DLS staff also provided a historical overview of the retirement and pension system.
The last speaker, Ron Snell from the National Conference of State Legislatures, provided information on retirement legislation enacted across the country. Mr. Snell said, “More states have enacted significant retirement legislation in 2010 than in any other year in memory.” According to Mr. Snell, trends include the following:
Reduced benefits for new employees with the same service and compensation
Higher employee contributions as a percent of salary
More restrictions on retirement before normal age and on retired people returning to covered service
Most changes occur within the framework of defined contribution plans
Replacement of defined benefit plans with hybrid plans in Michigan and Utah
Mr. Snell provided more specific information on the plans adopted by Michigan and Utah.
Michigan School Employees Retirement System – all teachers statewide
o Replaces a defined benefit plan for employees hired after July 1, 2010 with a hybrid
- Defined Benefit with higher age and service requirement and a lower benefit than the former plan. AFC based on 5 year (3 years in closed plan)
- Plus an opt-out defined contribution (401k) plan, with an employer match (4-year vesting) to employee contributions. Within limits, school districts may negotiate levels of employee contributions and employer match.
- No post-retirement COLA for the defined benefit portion
Utah Hybrid Plan
- Provides choice for employees – a defined contribution plan fully funded by employers with a contribution of 10% of salary or a plan that combines features of a defined contribution and a defined benefit plan
- Defined contribution component, employers will contribute 10% of salary
- When 10% is insufficient to meet the actuarially required contribution to meet full funding, employees will make up the difference
- When the 10% is more than is required to keep the plan actuarially sound, the difference will be deposited in an employee 401(k) account
- Employees may but are not required to contribute to the 401(k)
- Defined benefit available to 65/4; 60/20; 62/10; any age with 35 years of service. Five-year FAS; defined benefit equals 1.5% FAS for each year of service (presently 3-year FAS 2% factor)
Presentation materials can be found on the DLS website.
As the meeting closed, Chairman Taylor announced that the next meeting would be held on October 19 at 3:00 pm in room 120 of the Lowe House Office Building. He said they would discuss pension funding and investment policy and begin discussing employee and retiree health care.