December 21, 2010

Benefits commission recommends health insurance cuts, shifting teacher pension costs

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By Len Lazarick
Len@MarylandReporter.com

A commission on state retirement benefits voted Monday to recommend cutting the state costs of health insurance 10% by hiking premiums and reducing coverage for state employees and retirees, and shifting half the costs of teacher pensions to local school boards over the next three to five years.

The commission also proposed increasing the age and length of service to qualify for a state pension and other changes that would reduce the future payouts to retirees.

The health and pension moves could save the state a total of $400 million if fully implemented, but representatives of state workers, teachers and school boards immediately slammed the action by the Public Employees’ and Retirees’ Benefit Sustainability Commission.

The commission was making employees pay a lot more to recover a lot less, said Patrick Moran, executive director of the American Federation of State, County and Municipal Employees, the largest union of state workers. He called it “a rush to judgment” by the newly formed commission, and said the staff of the non-partisan Department of Legislative Services “has been driving this thing.”

Any change to health benefits would have to be made in collective bargaining with state employee unions. AFSCME is currently negotiating with the governor’s staff on a contract that is supposed to be in place by Dec. 31.

David Helfman, executive director of the Maryland State Education Association, said the shift in pension costs to school boards could potentially lead to increases in class sizes and other spending cuts.

Teachers and state employees won what Helfman called “modest increases” in their pension in 2006 in exchange for raising the percentage of their salaries they were contributing from 2 to 5%. “Now it’s time for the General Assembly to keep its promises,” Helfman said.

John Woolums, representing the Maryland Association of Boards of Education, said he found the shifting of pension costs puzzling since the school systems are “fiscally dependent” on the counties. The money would have to come from cuts in school budgets and could result in laying off teachers, cuts in extracurricular activities and other programs.

The action by the pension commission came after only two and a half months of study of the factors that have contributed to the state’s large unfunded liabilities for pensions – about $18 billion over 25 years – and health benefits – now about $15 billion.

Commission chairman Casper Taylor, a former speaker of the House of Delegates who is now a lobbyist, said it was more important to cut the growing costs of health care, which is “a bigger problem than pensions.”

The commission made only modest changes to the state pension systems, but recommended further study for more radical steps, such as reducing benefits.

As Taylor had proposed earlier, the commission voted to set the goal that the state’s several retirement and pension systems reach 80% funding in 10 years.

“If you try to get to sustainability too fast,” Taylor told reporters, “you’re going to wreck the bus again.

“It needs very deep study,” he said, and “we didn’t have time.

“We are not making those kinds of changes that turn things upside down,” Taylor said.

State Treasurer Nancy Kopp, a commission member who also chairs the board of trustees of the state retirement system, called the commission’s action “one step in a long process.”

The commission will submit an interim report to the governor and the General Assembly in January, and the commission will ask for an extension of its work to October.

Taylor said it was “very unlikely” that the legislature and the commission could act on its proposals in the upcoming 90-day session.

“We recognize that this hasn’t been as thorough as we would like,” Kopp said.

The commission worked from a “Decision Document” prepared by staff, and most of the recommendations were unanimous, though Kopp and former Sen. Barbara Hoffman voted against several proposals. Commissioner Orlan Johnson of the University System Board of Regents was absent.

Hoffman, Kopp and George Roche, former chairman and CEO of T. Rowe Price investment company, repeatedly raised concerns about how any changes would affect recruitment and retention of employees to state service.