Comptroller, budget secretary concerned about cuts to pension payments

Comptroller, budget secretary concerned about cuts to pension payments

By Len Lazarick

[email protected]

Comptroller Peter Franchot and Gov. Larry Hogan’s budget secretary are both raising objections to a proposal reducing state pension payments, saving money that may be used to increase education aid and state employee salaries.

“It is a bait and switch on rank-and-file teachers and state employees,” said Franchot, as well as “bait-and-switch” on the state’s rating agencies and taxpayers.

“It is gaming the system to constantly switch from one system to another,” Franchot said, with the state constantly seeking ways to set aside less money for the retirement system.

“If we perform exceptionally well [on investments], this will be a good decision,” Budget Secretary David Brinkley told the House Appropriations Committee Friday. “If we don’t perform as we have been or hope to … it will be a disastrous decision.”

The legislature’s staff is recommending that legislators eliminate extra payments into Maryland’s underfunded pension system and return to full actuarial funding.

The proposal would save $70 million in next year’s budget and $2 billion over the next 10 years. But in the following 13 years it would ultimately cost taxpayers $2.5 billion more than current plans for pension contributions,

One of the justifications for the change is the strong investment performance of the past two years — 10.5% and 14.3%, compared to a target of 7.65%.

Yet in the long-term, “Maryland’s pension fund has performed very poorly when compared to its peers,” said Brinkley. He serves ex officio on the Board of Trustees of the State Retirement and Pension System, as does Franchot, who is the board’s vice chair.

The 14-member board will hold a special meeting Tuesday morning to take a formal position on the proposal presented by the legislature’s pension expert, Michael Rubenstein last week.

Major 2011 changes led to supplemental payments

The legislature passed major changes to teacher and state pensions in 2011. Public school teachers and state employees now pay 7% of their salaries toward pensions, and will get lower benefits.

In exchange, the state promised to pay an extra $300 million into the pension system to make up for failing to contribute the full actuarially required amount for the past 12 years.

The state has never made the full supplemental payments, which have been the target of budget cuts. The new proposal totally eliminates them.

Del. Tony McConkey, R-Anne Arundel, asked “What moral obligation do we have to our promise to the employees?”

Del. Mike McKay, R-Allegany, said, “A promise made is a promise kept. My concern is we made a deal with these employees.”

The current payments system and high investment returns have made 80% pension funding possible by 2021. The reduction in pension payments puts off 80% funding of the pension system till 2023, the original target of the 2011 pension changes.

The state’s pension promises are currently only 68% funded.

Brinkley said if the cuts were made, he would like to see any savings applied to funding for retiree health insurance and other benefits, which have little advance funding.

About The Author

Len Lazarick

[email protected]

Len Lazarick was the founding editor and publisher of MarylandReporter.com and is currently the president of its nonprofit corporation and chairman of its board He was formerly the State House bureau chief of the daily Baltimore Examiner from its start in April 2006 to its demise in February 2009. He was a copy editor on the national desk of the Washington Post for eight years before that, and has spent decades covering Maryland politics and government.

4 Comments

  1. amdactivist

    why do taxpayers have to pay anyone’s pension plan? Contribute yourself maybe using IRA’s or whatever. Not fair to burden taxpayers with any of this. Also every year about 2k-3k bills are proposed with a fine, fee, permit or some kind of penalty attached. Do we really need these off the wall bills? Haven’t you done enough harm by adding Md to the high costs of living and 4th highest taxed state per capita? And why do we have to pay all your hotel fees during legislations. Drive to work like us peons do. My son in law travels 40 miles one way and pays high gas & toll fees. He’s struggling so why don’t you all pay your own way.

    • marylandman

      Your son-in-law is an idiot, then. I’m glad he’s taxed for his stupidity.

  2. MD observer

    Rubenstein’s analysis is pretty thin. It’s unreasonable to argue the last 3 years’ investment gains obviate the 10-year goal (in the 2011 legislation) to phase out corridor funding by 2025. OLA’s mandate requires it to render non-partisan advice. Rubenstein is not rendering such advice by his “counting chickens before they hatch” methodology. It will be interesting to hear the Retirement Board’s position tomorrow.

  3. Dale McNamee

    From the article : ” Comptroller Peter Franchot and Gov. Larry Hogan’s budget secretary are both raising objections to a proposal reducing state pension payments, saving money that may be used to increase education aid and state employee salaries.”

    How could this be a serious proposal in the light of a pension crisis ?

    Also from the article : ” The legislature’s staff is recommending that legislators eliminate extra payments into Maryland’s underfunded pension system and return to full actuarial funding.

    The proposal would save $70 million in next year’s budget and $2 billion over the next 10 years. But in the following 13 years it would ultimately cost taxpayers $2.5 billion more than current plans for pension contributions,

    One of the justifications for the change is the strong investment performance of the past two years — 10.5% and 14.3%, compared to a target of 7.65%.

    Yet in the long-term, “Maryland’s pension fund has performed very poorly when compared to its peers,” said Brinkley. He serves ex officio on the Board of Trustees of the State Retirement and Pension System, as does Franchot, who is the board’s vice chair.”

    This seems to be a study in contradictions… How can a cutting payments now save $70 million in next year’s budget and 2 billion over the next 10 years wind up
    costing taxpayers $2.5 billion over the following 13 years ?

    Instead of education aid & state employee salary raises… These savings should be plowed back into the pension system so that the “crushed” taxpayer can get relief.

    And since the State promised to make the extra payments and never did… The State’s word means absolutely nothing !

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