November 16, 2010

Employees, retirees beg for pensions not to be cut

Print More

By Megan Poinski
Megan@MarylandReporter.com
Retirees, current state employees and union representatives told members of the Public Employees’ and Retirees’ Benefits Sustainability Commission that financial problems with the pension system are not their fault, and they should not bear the brunt of any changes.

On Monday, commission members spent more than three hours hearing public testimony about what should – and should not – be done to reform the pension and retiree benefits system. The gap was blamed on several causes, from bad state policy and poor investments to the economic crash in 2008.

Most of the testifiers were adamantly opposed to making any change to benefits.

“I think your daunting task is telling the General Assembly, ‘You caused the problem, you have to fix it,’” said Maryland Association of Counties President David Craig, who is also Harford County Executive.

Maryland currently has an estimated $33 billion in unfunded liabilities for benefits it has promised to pay over the next three decades, divided specifically between $18 billion for pensions and $15 billion for retiree health insurance. The growing unfunded liability, coupled with a $1.6 billion total budgetary gap on the horizon for the next fiscal year, puts pension reform on the front burner for the next General Assembly session.

In an effort to find solutions to the pension shortfall, the eight-member Public Employees’ and Retirees’ Benefits Sustainability Commission was established by legislation as part of this year’s budget process. It is tasked with examining the State Employees’ Retirement and Pension System, State Employee and Retiree Health Benefits System, and Teachers’ Retirement and Pension System.

Before Monday’s meeting, commission staff came up with several types of changes that could be made to the system. These changes were calculated by actuaries and distributed to interested groups. The potential reforms were starting ideas for discussion, but not actual proposals before the commission. Most were not even discussed, except for witnesses to say they disapproved.

Low pensions

Patrick Moran, executive director of the American Federation of State, County and Municipal Employees (AFSCME), said that the “meager” benefits paid to employees were not to blame for the current pension crisis.

Several retirees shared just how meager their benefits are. Greg Currie, a retired corrections officer, said that his monthly benefits mostly cover his mortgage, and not other basic costs of living like utilities, gas or telephone service.

Doug Prouty, president of the Montgomery County Education Association, said that the average annuity paid to a retired teacher last year was $17,500.

“It is not as if the amount we receive is exorbitant,” he said.

Sue Esty, legislative director for AFSCME, said that cutting the amount retirees receive will burden the state in a different way. Retirees will earn so little from their pensions, she contended, they will become dependent on social services, which are also funded by the state.

Many unions, employee groups and retiree groups saw the ideas floated by the committee staff – all changes to way pension and health benefits are calculated – as short-sighted and unfair. Moran said that the calculations that were presented were “punitive cuts to employees, punitive cuts to their benefits. That is unacceptable.”

After relating chilling stories from his years on the job as a corrections officer, Currie said that he continued in his position because of the promise of a decent retirement.

“These are the worst cuts I’ve seen,” he said about the actuarial figures. “I’ve survived all the carnage of the Maryland correction system, only to be slaughtered in the place where I thought I was safe.”

Education woes

Many educators’ groups spoke out about one of their worst fears: shifting the government’s portion of funding for teacher pensions from the state, which pays it now, to local and county governments.

Craig from MACo said that the state created the higher costs for education through bills passed by the General Assembly. Counties had nothing to do with it, and it is not fair to shift the burden to them, especially since counties also are running tight budgets. Moreover, he said,counties don’t have any authority over salaries and staffing for school districts, since those items are in the purview of local boards of education.

Tish Raff, a legislative aide and member of the Maryland Retired School Personnel Association, said that any shift would create a “tremendous and undue burden on the counties.”

“It would be unfair to citizens in those jurisdictions,” Raff said. She continued that under this scenario, the money would have to be found and that might mean hiring fewer teachers or sponsoring fewer classroom learning initiatives.

Change funding method

R. Dean Kenderdine and Melissa Moye, who are executive director and interim chief investment officer respectively of the State Retirement System, presented the retirement board’s recommendation: changing the funding method.

According to Kenderdine and Moye, the state had completely funded the retirement system liability until 2003. Then, a law was passed that allowed the state to contribute less than 100 percent of its liability – and the same amount as it owed the year before – as long as at least 90% of the pension liability was funded. If the funding dropped below 90%, the state could pay the same amount that it paid the year before, plus 20 percent of the difference.

Because of the economic situation and the lax formula, the state fell behind in paying for pensions. Kenderdine recommended that the state take 10 years to transition from its old pension law to what it did before 2003 and pay its liability every year.

The commission will meet again at the end of the month.