Investments Come In-House with Pensions Bill

Legislation to create an investment division within the State Retirement Agency has proceeded smoothly through the Maryland Senate. The change would bring Maryland’s System into line with many other state pension systems of similar size, and could save costs in the long term.

On Thursday, March 15, a bill to create an internal investment division within the State Retirement Agency passed the Maryland Senate on what is called “second reader.” After a quiet hearing in the House, the bill passed that chamber with only a few technical amendments, and all signs now indicate that the bill will pass the General Assembly this year.

Additional amendments were described on the floor of the Senate on Thursday by Senator Guy Guzzone, Co-Chair of the Joint Committee on Pensions. The Senate’s amendments would establish an objective criteria committee to assist the State Pension Board in setting compensation for the Chief Investment Officer and positions in the investment division created by the bill.

As described in the fiscal note on the bill, compensation and operating expenses of the investment division are subject to appropriation from the accumulation fund of each system and are not paid by participating employers. Administrative fees, including those paid by county governments who participate in the State system, will continue to be used to support other divisions of the State Retirement Agency.

This legislation marks a major change in the State Retirement Agency, and one that could be prudent financially, resulting in better returns for the System. As described by Senator Guzzone,

“What we are trying to do is help the division perform better in each asset class. So we are giving them some authority to hire and raise salaries, commensurate with the industry. Hopefully that will lead to some success in those areas.”

For more information, see: SB 899 State Retirement and Pension System – Investment Division

Broad Unfunded Disability Allowance Would Disrupt County Systems

MACo Research Director Robin Eilenberg testified in opposition to House Bill 971, Local Pension Systems – Special Disability Retirement Allowance”, before the House Appropriations Committee on March 6, 2018. The bill would mandate and establish a new structure of pension benefits in county and local governments for special classes of public safety employees.

Counties that already negotiate benefits for these special classes would potentially have current systems undermined. Additionally, participating counties generally already engage in practices regarding finding other work for public safety employees who has an on-the-job injury who can no longer perform their duties. Counties also generally ensure retirement benefits at 60% of final compensation for injuries that are severe enough that the individual can no long work at all.

As an unfunded mandate that also applies retroactively to individuals that would be eligible for this allowance, the disruption of current systems and the costs to counties could be significant.

From MACo Testimony:

In the case of a public safety employee who suffers an on-the-job injury, county governments seek to get that employee back to work as quickly as possible. When the injury will not allow for a return to a duty post, the county’s first objective is to find another position for that employee. When an injury is so severe that work is not an option, the county governments MACo consulted generally ensure that a former employee is provided with retirement benefits and other income that equal 60% or more of the employee’s average final compensation. In some counties, the benefits may be greater than that amount (and greater than the amounts provided in the legislation), subject to union negotiations.

Under this legislation, those provisions might be inadequate. For example, finding an injured employee a new county government position and providing appropriate training and re-training would not be sufficient, unless the new position includes substantially similar pay, benefits, and advancement opportunities as the employee’s former post. Even in counties with large public safety departments, fulfilling these standards while seeking to place an employee in a vacant post would pose challenges, and in smaller departments, it may not be possible.

If it is not possible, then the county would be required to provide an injured employee with a permanent retirement allowance equal to 100% of his or her final pay, or an annuity of the employee’s retirement contributions and a permanent retirement allowance equal to 2/3 of his or her final pay. A former employee in such a scenario would likely find employment elsewhere, while still earning a level of retirement benefit typically reserved for employees who are unable to work at all.

In addition to these issues, the bill’s provisions would also apply retroactively – to anyone injured on the job in a law enforcement, public safety, or emergency response position since July 1, 2015. Opening the door to new benefits for cases already settled creates administrative and cost concerns, in addition to creating fiscal unpredictability in a county’s debt profile.

As an unfunded mandate that interferes with the local ability to provide coverage for special circumstances while sustaining retirement support for a broad spectrum of county government employees, MACo requests an UNFAVORABLE report on HB 971.”

Follow MACo’s advocacy efforts during the 2018 legislative session here.

Pension Benefits Increase Would Create an Unbalanced System

MACo Research Director Robin Clark Eilenberg testified in opposition to House Bill 1042, “Law Enforcement Officers’ Pension System – Benefit Cap Increase”, before the House Appropriations Committee on February 22, 2018. This legislation increases the limit for a normal service allowance for a member of the Law Enforcement Officers’ Pension System from 60% to 65% of the member’s average final compensation.

Seven counties currently participate in the Law Enforcement Officers’ Pension System (LEOPS), and this would require an automatic increase in the benefits provided to eligible law enforcement officers in those jurisdictions. This change would possibly change pension schedules and create an imbalance between law enforcement officers and other county employees.

From MACo Testimony:

For county governments that participated in the Law Enforcement Officers’ Pension System, this legislation effects an automatic increase in county law enforcement pension benefits, and a new variable in county government pension contributions. The changes in this legislation could widen the gap between retirement options for one portion of the county workforce—law enforcement—and all other county employees. It also could create costs, although the fiscal effects are difficult to predict alongside other law enforcement benefits, such as early retirement options.

An amendment could resolve this county mandate. There is precedent for providing county members of the state system with an option to join the benefit enhancement, too. Such an option could provide a discrete amount of time, for example 12 months, for a county government to determine whether they would join the enhancement.”

Follow MACo’s advocacy efforts during the 2018 legislative session here.