The Maryland Senate on Wednesday approved a fiscal 2015 budget that significantly reduces pension contributions aimed at improving the funded status of the $44 billion Maryland State Retirement & Pension System, Baltimore.
Under a package of reforms enacted in 2011, state officials agreed to contribute an additional $300 million per year to the system beyond its annual required contribution to reach an 80% funding level by 2023. The annual required contribution for 2015 is $1.6 billion. In exchange, state workers and teachers agreed to higher employee contribution levels and reduced benefits, including longer vesting periods and leaner cost-of-living increases.
The retirement system was 66% funded as of June 2013.
Maryland Gov. Martin O’Malley proposed withholding $100 million of the $300 million from the 2015 budget to offset the state’s budget deficit, but when state revenue projections came out lower than expected, legislators raised that amount to $200 million to pay for other spending priorities, including education and worker pay raises.
“These were choices between bad choices and worse choices,” said Sean Johnson, government relations director for the Maryland State Education Association, which represents teachers.
But Mr. Johnson noted that legislators agreed to work up to the $300 million annual funding level incrementally over the next four years, in addition to paying the annual required contribution, and included a provision that requires them to make up missed payments the following year. “There is even extra pressure for them to stay on schedule,” Mr. Johnson said in an interview.
The Maryland House will vote later this month on the budget measure, which the governor is expected to sign.
In budget hearings earlier this month, state Treasurer Nancy Kopp, who chairs the retirement system board of trustees, warned that the state will need to find more money in later years to reach the funding goal. Comptroller Peter Franchot, vice chairman of the retirement system, said the budget “reneges on a commitment made to our hardworking public servants who agreed to make near-term sacrifices for the long-term security in retirement that they’ve earned. It also threatens the state’s reputation in the eyes of the national financial community,” including the ratings agencies.
