By Donald C. Fry
Earlier this week the GBC announced the task force’s recommendations for stabilizing the pension plan’s funding structure.
A Greater Baltimore Committee task force comprised of experts in finance, employee benefits and actuarial issues spent the last seven months studying fiscal challenges to Baltimore City’s fire and police pension plans. Recommendations included, among other things, calls for increasing employee contributions, making city contributions to the plan more disciplined, and restructuring benefits and benefit increases.
A key message from experts who served on the task force, however, was that funding government pensions is not a challenge that is unique to Baltimore City. State and local governments across the U.S. are facing similar challenges, experts are warning.
In fact, we need look no farther than Annapolis to confirm the validity of that assertion. A recent study by the Pew Center for the States rated Maryland among eight states that merited “serious concern” about its pension funding levels.
As recently as 2000, Maryland’s government pension plans for teachers, state employees, judges, and law enforcement officers enjoyed a 101 percent funding level. But by the end of fiscal 2008, Maryland’s overall pension funding level had dropped to 78 percent, the Pew study reported. It dropped even further to 64 percent in fiscal 2009, according to financial data issued by the state Comptroller’s Office.
Maryland’s $1 billion combined pension plan contribution in FY 2009 constituted almost 7 percent of our state’s General Fund budget. But even with this level of fund contributions in FY 2009, the state’s total long-term unfunded pension liability increased by $7 billion last year.
Not to pile on, but Maryland’s funding of state retiree health care and other benefits is potentially more problematic, according to the Pew report. This challenge is being studied by a state Blue Ribbon Commission to Study Retiree Health Care Funding Options, which is due to issue a final report in December 2011.
Admittedly, much of the state’s pension liability shortfall can be attributed to the recession and market decline. State pension funds incurred investment losses of 20 percent in FY 2008. During the last two fiscal years, Maryland’s unfunded pension liability almost doubled, from $8.8 billion to $17.5 billion, according to state data.
But the state’s ratio of pension funding to liabilities had been slipping throughout the decade and, even before the recession, eased below the 80 percent funding level recommended by experts.
It’s reasonable to expect the value of pension fund investment assets to increase as our economy revives, presumably reducing future liability shortfalls. Meanwhile, Maryland’s Retirement and Pension System’s Board has initiated a multi-billion asset reallocation to diversify the system’s assets, maximize return on investment and reduce exposure to risk, Comptroller Peter Franchot reported in the state’s latest annual financial report.
Nevertheless, it’s probably too much to expect a post-recession rebound in investment returns to wipe out a more than $17 billion shortfall anytime soon.
State leaders must take note of the Pew Center’s finding that Maryland is among states that have “failed to make any meaningful progress” toward adequately funding pension obligations. It’s not time to panic. But it is time to make a smart, focused long-term commitment to stabilizing and reforming our state’s pension funding.