December 10, 2010

Teachers’ union criticizes pension commission process as rushed, “offensive”

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By Len Lazarick
Len@MarylandReporter.com

The executive director of the state teachers’ union said the process being used by the commission considering changes to state pensions was “offensive,” rushed, and lacked both details and consultation with affected employees.

“The whole discussion has been how are we going to cut costs,” David Helfman, executive director of the Maryland State Education Association, told reporters Thursday at a briefing. “There’s no indication that it’s being done in good faith.”

Casper Taylor Jr., the former House of Delegates speaker who heads the commission, denied most of Helfman’s complaints. “I think we’ve been very consultative,” Taylor said. “We have had a complete actuarial analysis.”

Even though the commission only started meeting in October, he said, “I’ve had no pressure” to finish the work of the commission.

In a phone interview Thursday, Taylor also denied saying that the eight-member commission would attempt to save $400 million to $500 million for the fiscal 2012 budget. According to my notes from Nov. 29 meeting, Taylor said, given the potential deficit of $1.8 billion in 2012, “the governor may have to be looking at our commission for $400-$500 million.”

“Our job isn’t to balance the budget,” he said Thursday, echoing remarks made by State Treasurer Nancy Kopp and former Senator Barbara Hoffman at the last meeting of Public Employees’ and Retirees’ Benefit Sustainability Commission Nov. 29.

He said one of the issues affecting the state budget was whether to transfer some of the cost of teacher pensions to the counties, as he and others favor.

The commission meets again on Monday, for what Taylor said would be “a complete run down of all of the options that we are going to vote on the following week.”

As spelled out in last week’s story, the options include increasing the vesting period to obtain a pension from five to 10 years, and applying the rule of 95 to receive a full pension, meaning a state employee’s age and length of service would have to add up to 95. Currently, state workers can retire after 30 years of service regardless of age, and someone can retire at a reduced pension at 55 after 15 years of service.

Several options would also reduce the amount of pension earned from each year of service from 1.8% of pay to 1.4% or even 1.2% of pay.

There is also a proposal to freeze cost-of-living adjustments for five years, or even for as long as 15 years.

Other options could include a “defined contribution” plan like a 401(k).

Helfman said he believes the COLA formula for current retirees constitutes a contract that can’t be changed.

The commission was set up to look at changes to reduce the pension’s unfunded liability of $18 billion over the next 30 years.

“We see this as a funding issue, not a benefits issue,” said Randall Mickens, a staff member of the Maryland State Education Association. Ten years ago, when the pension system was fully funded, the legislature switched to the “corridor method” of contributions, allowing the state to put in less than required each year if the pension funds could cover 80% of what they would have to pay out. That reduced funding, plus the collapse of the stock market, led to the current funding level of about 64%. It will probably rise to 69% this year because of an improved stock market.

Helfman said better investment returns and the lower pay raises for teachers that actuaries have not factored into projections should reduced the shortfall in the pension funds.

“Don’t overreact to a short-term funding challenge,” Helfman said. Major increases in school system aid fueled big hikes in teacher payrolls, but those increases have disappeared. “The growth in payroll is going to fall well under what the actuaries are assuming,” he said.

Pension benefits for teachers and state employees were raised just four years ago, passed by the legislature with unanimous bipartisan support and signed by Republican Gov. Bob Ehrlich.

“Our members will be lobbying the General Assembly very forcefully to keep its promises,” Helfman said.