State Pension Issues Front and Center

Numerous groups met this week to discuss State pension issues.  On Tuesday, November 9, the Joint Committee on Pensions, a legislative committee co-chaired by Senator Nathaniel J. McFadden and Delegate Melony G. Griffith, met to discuss State Retirement Board legislation and the annual results of Fiscal 2010 actuarial valuation and  Fiscal 2012 contribution rates.  Of particular interest is a Board supported proposal to change the system’s current funding methodology.  This proposal would phase out the Corridor Funding Methodology for the Employees’ and Teachers’ Systems over ten years; adopt a 20-year amortization period for the existing unfunded liabilities, experience gains and losses, actuarial assumptions, and new liabilities resulting from benefit changes; and smooth the fiscal 2009 losses over a ten-year period, rather than the normal five years.

Some key findings of the actuarial valuation and contribution rate report are 1) employer contributions increased for all Systems due to continued recognition of prior investment losses under asset smoothing; 2) contributions are expected to rise over the next several years; and 3) the corridor method dampens the rate of increase  and continued use will lead to increasing contribution rates even if all assumptions are realized.

When asked about state pensions, reports that Governor O’Malley responded, “Maryland’s huge pension problem should be front and center in this upcoming legislative session.”

O’Malley described the state’s unfunded pension obligations, which add up to roughly $33 billion, as one of Maryland’s biggest challenges to maintaining fiscal responsibility. “Figuring out a solution to these things is something that is going to, I think, require all of our attention, especially as we go into this next session, so I don’t think it’s the sort of thing that can be deferred down the road,” the governor said.He noted that parts of the solution may need to be implemented over time, but he said he favors addressing the matter right from the start of the next four-year term, because the longer the problem is put off the greater it will become.

O’Malley also reiterated his support for tackling the pension problem in a comprehensive way for all state employees, instead of only focusing on a portion of state employees, such as teachers.

The Public Employees’ and Retirees’ Benefit Sustainability Commission met on Wednesday, November 10, to continue their discussion of State pensions and State employee and retiree health benefits.  At this meeting they were briefed on the legal framework of retiree health and pension benefits, State funding of pensions for local employees, and the budgetary implications of employee benefits.  When discussing previous teacher retirement cost-sharing proposals, former Senator and Commission member Barbara Hoffman asked whether the Department of Legislative Services estimated costs using a wealth equalization formula and Commission member Aris Mardirossian asked about using income equalization.   Ms. Hoffman also asked if there has been any discussion on giving local boards of education taxing authority.

At the end of the meeting, Ms. Hoffman stated that they have a huge amount of work to do in a short period of time and that she is leery to make statutory recommendations.  She continued, “this is a two-year Commission.” Commission chair Casper Taylor, Jr, former Speaker of the House, echoed these comments and stated its unfortunate that the group didn’t come together until now.

The next meeting of the Commission will be held on November 15 and MACo has been invited to testify.

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