Experts Tell Maryland Pension Commission That Fix Is Needed

Maryland Daily Record

by Capital News Service

Published: October 20th, 2010

ANNAPOLIS — The state has a “huge unfunded liability for health benefits,” Barbara A. Hoffman, former chairwoman of the Senate Budget and Taxation Committee, said at a pension commission meeting Tuesday.

The Public Employees’ and Retirees’ Benefit Sustainability Commission has been charged with examining the state’s retirement benefits, a task which includes addressing both the state’s underfunded pension system and health benefit system.

In its second meeting, the commission heard presentations that included the impact of national health care reform on the state, as well as an overview of current health benefit plans for state employees and retirees.

Retirees under the state’s health benefit plan are entitled to the same health benefits they received during their employment. Health care costs are increasing, however, and posing a problem for the state.

Michael Rubenstein, a policy analyst for the Department of Legislative Services, also described the steady growth of liabilities in the State Retirement and Pension System.

Rubenstein said the growth can be attributed to factors including increases in salaries and rising life expectancy.

The funding level of the State Retirement and Pension System has declined to 64 percent funded as compared to 101 percent in 2000.

Funds in the pension system have also decreased due to recent investment losses in 2008 and 2009 resulting from the current economic climate. Other investment losses stemmed from the tech bubble bursting in 2001 and 2002.

Two main models exist to provide retirement funds for state employees. Under the state’s pension system, employees are guaranteed a set pension payment each year after retirement.

The alternative, a defined contribution plan, requires the employer to contribute a certain amount to an individual’s retirement savings per year as long as he or she works for that employer.

According to a Pew Center on the States study, “Maryland’s management of its long-term pension liability is cause for serious concern and the state needs to improve how it handles its retiree health care and other benefit obligations.”

Chairman Casper R. Taylor Jr., a former Speaker of the Maryland House of Delegates, said the commission will perform analysis “so we can determine actually and honestly whether the underfunding level we have now is a crisis. We don’t know that yet.”

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