Larry Hogan | Pension360

Maryland Officials Warn Against Plan to Cut State Pension Payments

Maryland lawmakers are considering cutting the state’s payments into its pension system, citing strong investment performance.

The cuts would total $2 billion over the next 10 years, according to the Maryland Reporter.

But several key government officials are wary of the plan, including the state’s Budget Secretary and Comptroller.

From the Maryland Reporter:

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.”

Both men sit on the Board of Trustees of the State Retirement and Pension System.

The system is currently 68 percent funded.

If the state doesn’t cut pension payments, the system is on track for 80 percent funding by 2021.

Photo by TaxRebate.org.uk via Flickr CC License

New Maryland Gov. Turns Focus to State Pensions

Gov.-elect Larry Hogan is busy constructing a budget to give to state lawmakers this week. But next on Hogan’s to-do list is a thorough examination of the state’s underfunded pension system – and how it will affect the budget his team has just put together.

From the Baltimore Sun:

The Maryland State Retirement and Pension System had only about 69 percent of the assets needed to pay for future and current retirees’ pensions in the last fiscal year — well below the at least 80 percent target that many experts consider healthy.

Robert Neall, Hogan’s fiscal adviser, called the nearly $20 billion unfunded liability in the state retirement system “an area of concern.” Hogan’s team has been busy putting together a budget to present to the Maryland General Assembly on Jan. 23, but Neall said the administration will soon begin examining the health of the pension system.

“That’s going to require higher pension contributions [from the state] probably for two decades, that’s why it’s a concern,” Neall said. “They are just facts that we have to contend with as we put together a fiscal ’15 closure and a fiscal ’16 budget to present to the General Assembly.

[…]

Michael Golden, a spokesman for the state pension system, said reforms made to the pension system in 2011, including requiring most employees to contribute 7 percent of their salaries into the fund instead of 5 percent, put it “on the road to stability.”

“We feel like were on track to get to the 80 percent funded ratio by 2024; we think that’s a good track to be riding on,” Golden said. “We have no plans at this moment to do anything differently.”

Robert Burd, the retirement system’s acting chief investment officer, said the board chose to reduce the percentage of money invested in stocks — about 39 percent was invested in stocks in 2014, less than most other states — after the recession because of concern about risk. While Maryland has not enjoyed as much of a benefit from the rebound in the stock market, Burd said, the change leaves the fund less exposed to future downturns.

“That’s why we don’t look as good as some of our peers do when it comes to rankings,” Burd said.

Maryland’s pension system manages $45.4 billion in assets for 143,000 retirees and is 69 percent funded.

Maryland Gov.-Elect Pulls Plug on Retirement Savings Panel

Maryland Gov.-elect Larry Hogan says he is pulling the plug on a retirement savings task force set up under his predecessor, Gov. O’Malley.

The panel’s purpose was to study and issue findings on how to get middle-class residents to save more for retirement.

Politics may have played a role in Hogan’s decision to shut the panel down.

More from the Baltimore Sun:

What makes Mr. Hogan’s decision notable is that the 14-member task force created by Gov. Martin O’Malley less than one year ago only began what was supposed to be a two-year study this past summer. It has met only three times and has yet to issue any findings. In other words, it was just getting warmed up but will expire in mid-February under terms of the executive order unless renewed by Mr. Hogan, which he says he won’t do.

It’s not hard to guess why. One of the key proposals being explored by the group and its chair, former Lt. Gov. Kathleen Kennedy Townsend, is requiring businesses to offer a retirement savings plan or, as an alternative, enroll employees in a state-managed savings plan. There has also been discussion of making such a program an “opt out” for employees, meaning that workers would automatically be enrolled in the retirement savings plan through a deduction in their paychecks unless they took steps to remove themselves from participation.

[…]

But some in the business community bristle at the notion that government might mandate a retirement benefit (even if it carries no fiduciary obligation to the employer), and Mr. Hogan, who spoke often during the campaign for governor about the need to lift government mandates, may be especially sensitive to that criticism. Meanwhile, refusing to maintain the task force doesn’t come with much political cost to someone who never signed the executive order creating it in the first place.

For more on the panel and its demise, click here.