An editorial in the Washington Post critiques the Maryland Legislature’s new approach to funding the state pension system, which has a larger than $17 billion unfunded liability. The Editorial states,
FOUR YEARS ago, lawmakers in Annapolis struck a deal to undergird Maryland’s perilously indebted pension fund. The deal rested on a pair of sacrifices: State employees would contribute 7 percent of their earnings into the fund, rather than 5 percent. And the state would reciprocate by chipping in $300 million annually in catch-up payments to restore the fund to a facsimile of good health over the next couple of decades.
Last year lawmakers failed to honor the deal, slashing the state’s contribution in half. This year they did it again, whacking the catch-up payment to just $75 million for the fiscal year starting in July.
Yet when Gov. Larry Hogan (R) put his foot down, insisting on a $150 million payment — still just half the amount approved in 2011 — Democrats in the legislature painted him as a bogeyman and refused to go along.
While the Legislature’s new plan for pension funding reduces the amount of the planned-for $150 supplemental contributions to the pension fund, it does return the State to full actuarial funding model. As described by the Department of Legislative Services,
Repealing corridor funding and the supplemental contribution accomplishes two significant positive outcomes. First, it restores full actuarial funding of the State Retirement and Pension System, which not only places the system on solid financial footing but also will be seen as a positive factor by the credit rating agencies. Second, it reduces State expenditures by $71.3 million in fiscal 2016 and by increasing amounts in the out-years.
For these reasons, the Department of Legislative Services recommended the funding change to the Legislature in the 2015 Legislative Session.
For more information, read the Post’s editorial here, the Department of Legislative Services analysis here, and our previous posts on Conduit Street: Governor to Fund Pension System, Not Education With Set Aside Funds; Presentation Explains Pension Funding Plan Passed by the House; Maryland Legislature Considers New Pension Funding Proposal.