O'Malley proposes pension reform

Gov. Martin O'Malley proposed on Friday closing the state's 2012 budget shortfall with a combination of cuts, borrowing and changes to the state's pension system.
SOURCE: Maryland governor's office | The Washington Post - Jan. 22, 2011
Washington Post Staff Writers
Saturday, January 22, 2011

Maryland Gov. Martin O'Malley (D) on Friday married broad pension reform with this year's state budget negotiations, drawing rebukes from unions for the state's 80,000 employees as well as tens of thousands of county teachers because they would have to set aside more of their pay to get the retirement they expected.

O'Malley's proposal amounted to the first use of political capital he amassed in his convincing reelection bid. But he did so for a fix that had grown into an almost inevitable requirement of a second term.

After years of poor returns on Wall Street, Maryland faces a bill coming due of almost $16 billion in unfunded pension costs and had in recent years been setting aside less than 1 percent of its retiree health-care liability. Nineteen states approved pension reform last year, and analysts had said the management of Maryland's system had become a blight and could threaten the top-flight bond rating of the once fiscally conservative state.

But unions charged that after years of furloughs and frozen wages, increasing pension costs would amount to pulling the rug out from under employees who have struggled during the recession and finally had begun to hope that, with the end of furloughs in this year's budget, better times were ahead.

"We're going to fight like hell against it," said Patrick Moran, president of _blankthe Maryland chapter of the American Federation of State, County and Municipal Employees, the state's largest union. "They earned this - they work, they pay taxes like everyone else - and now we're going to say, 'you're going to do more with less,' which is going to create more uncertainty in their waning years."

Under O'Malley's plan, current employees would have an option of increasing their contributions by 25 percent, to 7 percent of their pay, to earn the same retirement pay they had been expecting. They also could opt to continue contributing about 5.6 percent of their pay to the fund but would risk decreased benefits.

New employees would have no choice and also would face an early retirement age of 60 instead of 55, as well as other increased costs. Current retirees would not be affected.

The pension changes affect teachers in Maryland because the state pays their pensions. Lucrative pensions for current and former law enforcement officers would not be affected, but new police officers would face a loss of some benefits.

Will help close shortfall

Maryland's general fund would get a one-time, modest boost of $104 million from the reforms to help close an estimated shortfall of $1.4 billion in the budget year beginning this summer.

But O'Malley cast the changes as important reforms that would allow Maryland to stay true to its Democratic ideals and retain a defined-benefit pension system.

"We are going to take the tough decisions now," O'Malley said, asserting that the changes would allow Maryland to attain the federally recommended solvency rate of 80 percent by 2023.

Kil Huh, director of research for the Pew Center on the States, which has studied and compared all states' unfunded pension liabilities, said that O'Malley's reforms echo proposals that have passed in many other states, although the contribution rate for employees in Maryland may be higher than nationally.

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