August 18, 2010

Pension fund commission appointments delayed

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By Barbara Pash

For MarylandReporter.com

The commission created by the legislature to review the long-term prospects for the state’s pension system has yet to be appointed three months after it was signed into law, and its first report is due Dec. 15.

Aides to the governor and legislative leaders who will appoint seven of the commission’s eight members say that the appointments will be announced soon. But at least one union official speculates that the process has been slowed to avoid any discussion of controversial changes before the election.

Strong performance of investments this past year has boosted the retirement funds, but there is still $18 billion in unfunded liability over the next 30 years, and the funds are far below established goals.

The new Public Employees’ and Retirees’ Benefit Sustainability Commission is charged with looking into the State Employees’ Retirement and Pension System, State Employee and Retiree Health Benefits System and Teachers’ Retirement and Pension System.

“The commission is forthcoming. It will happen soon,” said Alexandra Hughes, policy adviser to House Speaker Michael Busch who gets to appoint two members of the commission, as does Senate President Mike Miller. Gov. Martin O’Malley is to appoint three members and State Treasurer Nancy Kopp serves as an ex-officio member.

Hughes did not have a time-frame for the appointments, but she knew of at least one conversation between Busch and Miller on the subject.

O’Malley press secretary Shaun Adamec said in an e-mail that candidates are currently being considered, and that the governor hopes to have members appointed in time to meet the December reporting deadline.

The General Assembly established the commission as part of the Budget Reconciliation and Financing Act of 2010 (page 81) signed by O’Malley May 20.

The commission is supposed to have a final report by next June, with any recommendations implemented by 2013.

Election year may be factor

David Boschert, head of the Maryland Classified Employees Association, said: “We’re in the middle of an election year and it is my opinion that the legislative leadership may not wish to begin the commission until 2011 when they have the full, new legislators for the next four-year period.”

Boschert, a former Republican delegate seeking reelection to his old seat, noted that the leadership can change the December date of the first reporting period.

State commissions often have their life and reporting periods extended.

Patrick Moran, state director of the American Federation of State, County and Municipal Employees, does not know why the commission has been delayed. But AFSCME has recommended nominees to O’Malley, Miller and Busch

Moran said the union will take a formal position once the commission is formed. “We have trust” in the state pension fund’s future, he said. “Every pension fund has taken a hit with the economic downturn.”

Boschert said he understands the need for pension reform in the current economic climate, but is “very concerned” about any restructuring of benefits. MCEA is not taking an official position, but Boschert believes that benefits for current retirees and employees should continue as they are. Any new pension program should only affect new employees going forward, he said, and if changes are made to current benefits, current employees should be given the choice to “opt out” of the pension system.

Boschert said he has an idea of the future commission’s direction from meetings of the Blue Ribbon Commission to Study Retiree Health Care Funding Options that he has attended. This commission has been looking into restructuring the prescription drug plan for state retirees and increasing the length of service needed to get the health benefits from 5 to 16 years. Its report was originally due last December, but the legislature has given it another two years.

Good return on investments this year

Maryland’s Retirement and Pension System had a banner year in fiscal 2010, earning 14% on investments, almost double the expected return. The market value of the pension fund now stands at $31.8 billion.

The steep increase follows two years of declines. The fund was down 3.5% in 2008 and 20% in 2009.

Dean Kenderdine, executive director of the state pension system, said the 2010 performance won’t fully close the gap caused by the two years of losses.

CORRECTION: “Like nearly every other public pension plan, our gains and losses are smoothed over a five-year period,” Kenderdine said. “It will take many years to bring the status back to a fully funded position.”

CORRECTION: In fiscal 2009, the state pension system was funded at 65%, while the standard for public pension funds is 80%. Kenderdine expects the fund to continue “in the sixties” percent level “for some time.”

The unfunded obligation of the state pension funds is $18 billion over the next 30 years, according to Michael Rubenstein, principal policy analyst for the legislative services department. Ten years ago, the pension fund was fully funded, and two years ago the fund was at 78%.

“The bond rating agencies are taking a cautious approach” to Maryland’s pension liabilities, said Rubenstein. The raters noted the problem in their most recent reports. “There is not serious panic, but there is concern that we are not catching up,” he said.