March 22, 2015

Rascovar: Pension move betrayed state workers

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House Delegates

By Barry Rascovar

For MarylandReporter.com

Once again, the House of Delegate took the easy way out of its budget bind — and in the process stuck it to future state workers, teachers and taxpayers.

The Senate is on a glide path that follows that same flawed approach.

Instead of facing up to its fiduciary pension obligations, Annapolis delegates opted to play games, placing at risk the safety of state retirement programs.

In the process the delegates are leaving the next generation of taxpayers a monster-sized unpaid pension bill in the billions of dollars.

If Maryland loses its prestigious triple-A bond rating, you’ll know who to blame.

Thanks to the intellectually dishonest proposal by the Department of Legislative Services, the delegates found a way to save $75 million this year to pay for K-12 education and a salary increase for state employees — if the governor goes along with those suggestions.

How it started

Back in 2011, the state agreed to supplement its annual pension contribution by $300 million a year. This was the quid pro quo for forcing state employees and teachers to contribute more out of their own paychecks into the troubled pension program.

But lawmakers reneged on the bargain, eventually cutting their supplemental payments to $150 million a year — or to zero when times got tough.

Now the House wants to reduce the state’s supplemental payment to just $75 million each year — a far cry from the original $300 million commitment. Meanwhile, state employees and teachers get no relief from their enlarged payments to the pension program.

A major part of the rationale for this irresponsible move by lawmakers is the fast-rising value of the retirement agency’s stock portfolio. Last June 30, the state pension program topped $45.4 billion — a rise of $5.2 billion in just one year.

Its investment return for the fiscal year was a strong 14.4 percent. Fund managers have exceeded their target of 7.7% growth in four of the past five years.

Roller coaster ride

Sounds wonderful, doesn’t it?

It certainly entranced the legislature’s budget analysts, who cited the stock market rise as a key factor in recommending that the state slash its supplement payments by 75 percent.

But a funny thing is happening on Wall Street.

In the first 75 days of 2015, stocks ran out of gas. The long rally stalled. Prices are about where they were on Jan. 1.

If Wall Street’s prices fail to rise, or even fall, for the rest of this year, Maryland’s pension managers won’t come anywhere near their 7.7 percent growth target.

The retirement agency’s unfunded liabilities could jump substantially — and the heat will be on state legislators and the governor next year to make up the difference.

Inevitable downturn 

That’s why the legislature’s quest for immediate gratification is so misguided. This is not the time to monkey around with reduced pension contributions.

When the bulls rule Wall Street, Maryland politicians start thinking they can cut back on the state’s pension appropriations. But that ignores the inevitability of the economic roller coaster. Prosperity only lasts so long.

If lawmakers don’t prepare for the lean years they will put Maryland’s pension program — already nearly $20 billion in the hole — in an even worse bind.

Barry Rascovar’s blog is www.politicalmaryland.com. He can be contacted at www.brascovar@hotmail.com

  • Dee Hodges, MD Taxpayers Assoc

    The 7.7% growth target for the pension investments has been unrealistic since the so-called Great Recession began in 2008. As a result, expensive pension managers have been investing in riskier and riskier areas. Most private sector employees have no pensions. Instead, many have 401Ks. It would be safer for state employees to have similar accounts rather than pensions. The state should shift in this direction. Otherwise, retirees could face a crisis and wind up losing as private sector employees started to in the 1970s. Also, asking the majority of taxpayers who have no pension benefits to pay for government retiree pensions seems unfair.

    • Dale McNamee

      I agree, Dee. I used to be a stockbroker and if I made representations of returns on investments that weren’t true, I’d face fines, jail, & ruination ! Why aren’t these overly compensated ” pension managers” held to the same standards ? Oh, wait ! They work for the government ! That’s why !

      Also, I wonder if the retirees are financially savvy enough to understand the situation they’re in ?

      Given the conflicting information, I’d be confused as well.

      I wonder who has legislative oversight of those who manage the pension ?

      And, “pension reform and full funding” doesn’t have the same “cachet” as ” K-12 education” & “state employee pay raises”…