For Maryland taxpayers and state workers, pension tension

Tuesday, December 21, 2010; 8:33 PM

Time may be running out for Maryland's cash-strapped state pension plans. Having spent most of the past 10 years under-contributing to the plans that cover more than 100,000 former employees, the state faces unfunded pension liabilities of more than $18 billion over 25 years and unfunded health-care obligations projected at $15 billion. According to the Pew Center on the States, Maryland's public-employee retirement system ranks among the most troubled in the country. Only hard choices by second-term Gov. Martin O'Malley and the Democratic-majority legislature can prevent ruinous borrowing, major tax increases, public service cuts - or some combination of the three.

So Mr. O'Malley and the lawmakers need to take an urgent look at the Maryland Public Employees' and Retirees' Benefit Sustainability Commission's recommendations, announced on Monday. Established by the state legislature during its latest session - in part to remove the issue from this year's election debate - the commission proposed cutting state health-care costs 10 percent by raising premiums and tightening eligibility. For example, future employees would be eligible for state health benefits based only on state government service, rather than counting military and county government experience as current law allows. On pensions, the panel recommended reduced benefits for new employees and requiring them to work 10 years to become vested in the plan - rather than five as employees do now.

Most controversially, perhaps, the commission called for a major change to the state's unusual system whereby counties set the level of teacher pensions but the state funds them, to the tune of more than $900 million per year and rising. This creates an obvious perverse incentive for local governments to promise more than they could deliver themselves. The state Senate passed Montgomery Democrat Richard S. Madaleno Jr.'s bill to phase in over five years a 50-50 split of the pension cost between the state and localities. But the House of Delegates declined to pass it amid resistance from Montgomery and Howard counties. The commission was tasked with finding an alternative, if any. Its recommendation - to do more or less what Mr. Madaleno proposed - suggests how limited are the realistic options. Mr. O'Malley's advisers are considering shifting 40 percent of teacher retirement costs back to the counties. To be sure, even a gradual shift will amount to a budgetary shock for counties, which is one reason the commission was wrong to propose weighting the cost-sharing according to county wealth. That would effectively penalize Montgomery and Howard counties not only for their own improvidence but for that of other jurisdictions.

Overall, the commission's proposals are moderate and, if anything, too modest. For example, one option before the panel was to adopt a "rule of 95," meaning an employee's age and time of service would have to total 95 to qualify for a full pension. Instead, the commission voted for a "rule of 92." Nevertheless, public-employee unions immediately denounced the proposals. Patrick Moran, executive director of the American Federation of State, County and Municipal Employees chapter in Maryland, complained that "you're expecting employees to pay more, and at the end of the day, receive a lot less." Well, yes. Indeed, that's a fair description of what many Marylanders may have to do if the state is to achieve fiscal sustainability. Given the recent increases in pay and benefits state and local employees have received, it's not unreasonable to expect some adjustments now.

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