The newly appointed commission to review the long-term sustainability of the state pension system will hold its first meeting sometime in the next few weeks. But union officials are already warning of dire consequences should the commission recommend cuts.
Maryland currently has about $32 billion combined in several pension funds. That’s less than two thirds of the money needed to pay promised retirement benefits. There are $18 billion in unfunded liabilities. There is another $15 billion in unfunded promises for retiree health benefits, and the state has been putting away no money recently to pay for them.
“What is the reasonable level of unfunding? That is the important question,” said commission chairman Casper Taylor, Jr., a lobbyist who was speaker of the House of Delegates for nine years. “I am not at all sure that our dilemma is currently as bad as some people think it is.”
Commission member Barbara Hoffman, a lobbyist who chaired the Senate Budget and Taxation Committee, expects to have “conversations” with union officials, but they won’t be “easy,” she said. “Everyone has to understand that money is not unlimited.”
The legislature created the new eight-member Public Employees’ and Retirees’ Benefit Sustainability Commission as part of this year’s budget process. It is supposed to examine the State Employees’ Retirement and Pension System, State Employee and Retiree Health Benefits System and Teachers’ Retirement and Pension System.
“The methodology we are using was fine for a long time but it may not be enough now,” said Hoffman.
Unions oppose changes
David Boschert, head of the Maryland Classified Employees Association, reiterated his stand that the union would oppose any detrimental changes to the pensions of current and retired state employees.
Sue Esty, assistant director of the American Federation of State, County and Municipal Employees, said the current fears about the pension system’s sustainability are “way overblown.” Over the years, she has seen the pension system’s funding level swing from 80% to 100% to its current 65%.
“Our state takes a long-term view of the pension system. People should not be influenced by a snapshot of the funding level,” said Esty, who expressed confidence that the funds would rebound.
She said the state pension system and health benefits are major incentives for people to work in state government and to stay as state employees.
“I urged the greatest caution in any cuts” to either, she said.
The commission will likely hold its first meeting at the end of this month or the beginning of October. Taylor is meeting Wednesday with staff at the legislative services department to put together a schedule.
He expects the commission to meet the mid-December deadline for issuing an interim report. The commission’s final report is due 2012, in time for recommendations to be implemented for FY 2013.
After examining the data, Taylor said the commission would determine how the system reached its current state and discuss “rational options.”
Long way from conclusions
At the moment, said Taylor, “It’s impossible to say that benefits are too liberal and need to be reduced. If we reach that conclusion, obviously we have to reduce benefits. But we are a long way from reaching that conclusion.”
Hoffman noted that some states have cut or reneged on their pension obligations because of insolvency. She said Maryland does not want to be in that position because “it would threaten the state’s Triple A bond rating and open the state to lawsuits.”
Hoffman said she understood the fear of current and past employees and teachers that their benefits could be reduced.
“The biggest fiscal issue is the long-term liability for pensions,” she said.
On health benefits, Hoffman predicted that the commission will consider “how you integrate, or do you want to integrate, the federal prescription drug Medicare Part D” into retirees’ current prescription drug benefits.
One reason the commission was created was because of a proposal to shift funding of teacher pensions from the state to the counties. “Both counties and teachers are concerned about that,” Hoffman said.
The Maryland Association of Counties opposed that plan and suggested a commission study all the pension systems.
In response to a question from MarylandReporter.com about the new pension commission, the Maryland State Education Association released a statement through communications director Adam Mendelson:
“The pension shift proposed by the Senate last year did nothing to secure adequate funding for Maryland’s pension obligations. Taxpayers were simply told that some of the pension contributions would come from their local taxes instead of their state taxes. We want to be a part of the solution, and we believe there are viable solutions worth investigating together.”
“Our retirement benefit is one of the best recruiting and retention tools we have and therefore is crucial to being able to continue to attract outstanding educators and maintain our public schools’ ranking of #1 in the nation.”
Both MCEA’s Boschert and AFSCME’s Esty plan to monitor the commission’s meetings closely. “We intend to be very involved,” Esty said.