ANNAPOLIS – Maryland counties would pay half of teacher retirement costs — now paid for entirely by the state — and state employees would need to work a decade longer to receive retirement health benefits, under new recommendations by a state-appointed commission. Members of the state’s pension commission — a group charged by lawmakers to recommend reforms to the retirement system by January — voted on the proposals and other cost-saving measures Monday.
The expense-shifting proposal for teacher pensions would be implemented over three years, costing counties roughly $412 million by 2016.
Montgomery and Prince George’s counties, home to Maryland’s largest school systems, would pick up 35 percent of the tab. The state’s other 21 counties and Baltimore City would pay the rest.
| The commission’s recommendations |
| Health benefits |
| » Employees must work 15 years (up from five years) to receive health benefits in retirement. |
| » Employees must work 25 years (up from 16 years) to receive the state’s maximum contribution rate. |
| » State will reduce contribution rates to retirees’ spouses and other dependents. |
| » Future employees must retire directly from the state to participate in the state health plan. |
| State pensions |
| » The state should redesign pension benefits for new and current teachers and state employees to cut costs. The restructured package should remain a defined-benefit plan and reduce benefits going forward. The legislature should commission a study to determine the best way to cut benefits. |
| » Employees must work 10 years (up from five years) to become vested. |
| Teachers cost-sharing |
| » Local boards of education should begin paying 50 percent of teacher pension costs. The proposal should be phased in over at least three years. |
School board officials and teachers unions say the shift would stretch education budgets too thin and drive quality teachers out of Maryland.
“These cuts could have a devastating impact on classroom resources and on our children,” said David Helfman, executive director of the Maryland State Education Association.
Maryland’s ailing pension system, which has about 315,000 members, is underfunded by $33 billion and considered one of the most bankrupt systems in the country. Roughly 64 percent of the pension benefits promised to current and future retirees for the next 25 years are paid for. Virginia’s pension system is underfunded by $17.6 billion.
The state Senate passed a similar measure dealing with teacher pensions in the 2010 session, but the House shelved the proposal and instead appointed the pension commission to study alternatives.
The commission also suggested the state save $100 million — or 10 percent — in health benefit expenses by tweaking state
employees’ eligibility requirements and reducing the state’s contributions to retirees’ spouses and other dependents.
Health benefits cost the state roughly $1 billion in fiscal 2011, and expenses are expected to continue growing by roughly $100 million annually.
“There aren’t any general funds to increase the [state] contribution in the current situation,” said Warren Deschenaux, chief policy analyst for the state’s independent Department of Legislative Services. The state is facing a $1.6 billion budget gap for fiscal 2012. “In the absence of that, [funding for current benefits] must be generated by savings within the system.”
Employees would have to work for the state for 15 years — a 10-year increase — to get health coverage during retirement, according to the commission’s recommendations. To benefit from the state’s maximum contribution levels, retirees would have to earn 25 years of service — a change from the current 16-year service requirement. And vesting would take 10 years instead of the current five years. Union officials say the changes would hurt Maryland’s ability to attract and retain quality employees.
“You’re expecting everyone to pay a lot more and at the end of the day receive a lot less,” said Patrick Moran, director of the Maryland chapter of the American Federation of State, County and Municipal Employees union.
