December 8, 2009

State retirees facing pension cut

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By Andy Rosen
Andy@MarylandReporter.com

Pension payments to retired state employees could go down next year for the first time ever as benefit calculations reflect a shrinking economy in 2009, and some lawmakers are looking at whether the state should step in to prevent it.

Though the year is not yet over, the Consumer Price Index that measures the cost of household goods and services is trending downward, and under current law that would cause payments to decline. Typically, increases in the CPI drive cost of living benefit increases, but the mechanism cuts both ways. The U.S. CPI was down 0.2 percent during the 12 months that ended in October.

The senators and delegates on the General Assembly’s Special Joint Committee on Pensions decided on Tuesday not to act on the CPI issue before the session. Instead, the panel elected to wait until final inflation figures are available in the new year. The General Assembly would have to change the law to avoid the cuts.

Del. Melony Griffith, D-Prince George’s, the committee’s House chairwoman, said it would be better to wait until the General Assembly session begins in January.

The American Federation of State, County and Municipal Employees, the state’s largest public work force union, is already pushing back against the possible pension cut. Union officials brought about 10 members along to observe the hearing.

Sue Esty, assistant director of AFSCME Maryland, said the committee was “punting to the legislative session,” but she promised a strong reaction from the union if a benefit cut were imminent.

“First of all, when we retire, we’re asked to live off of one third of the income that we had,” said Sylvia Seymour, a retired Department of Human Resources worker and AFSCME member from Baltimore. “We had to adjust to live with that one third, and to cut that would really be a hardship. It would be a disaster.”

But the pension system, though better situated than some other states, is as strained as it has been in years. During last year’s recession, the value of the state’s pension fund plummeted by $8 billion.

Maryland has now funded 65 percent of its 25-year liability, a ratio that is down from close to 100 percent early this decade. The state is likely to have to spend $189 million more next year than it did this year on pensions.

Del. Gail Bates, R-Howard, who sits on the pensions committee, said she hasn’t made up her mind on whether a negative cost of living adjustment (COLA) should be allowed to go through. However, she pointed out that many current state workers have seen their pay reduced through furloughs this year.

“I have questions about whether it is fair to hold retirees to no cuts at a time when state employees who are working now have [had] furloughs with no COLA’s,” Bates said. She also acknowledged that the money comes from different places, with most worker salaries coming from the general fund and retiree pensions coming from the retirement system.

Another member of the pension committee, Sen. Rona Kramer, D-Montgomery, said she thinks the issue will likely not amount to much.

“If there were a negative CPI, it would be minimal and not even worth the state’s consideration,” she said.

However, Kramer said the mechanism that allows the CPI is misguided. The idea is to make sure retirees keep their purchasing power in the event of inflation.

“I think it’s bad policy to be reducing peoples’ checks based on CPI,” she said.

Dean Kenderdine, executive director of the State Retirement and Pension System, said he believes that the General Assembly will protect newly-retired workers from having their expected payments reduced, even if lawmakers allow the negative cost of living increase to go through for already-retired people.