ANNAPOLIS – Retired state employees in Maryland would not receive a cost-of-living increase in years of deflation, according to recommendations a pension commission approved on Wednesday. The amount that the Consumer Price Index drops would affect employees’ cost-of-living adjustments in the following years until the losses are recouped, according to the recommendations approved by the Joint Committee on Pensions.
Specifically, if the CPI, which measures inflation, drops to minus 2 percent in 2011, employees would receive no cost-of-living increase. If inflation increases 3 percent the next year, employees would receive a 1 percent increase to account for the losses in 2011.
The committee’s approval will be noted in its final report to the General Assembly recommending changes to the state’s pension system, which is due in January.
The committee voted down a recommendation to change the funding formula that has allowed the state to pay less into its ailing pension system than it owes. But members wouldn’t vote to oppose the recommendation, either.
Instead, the members settled on sending a letter to the other state committee studying the issue — the Public Employees’ and Retirees’ Benefit Sustainability Commission — urging it to address the issue.
“Actions at this time, on our part, would be premature,” said Del. Melony Griffith, D-Prince George’s County, saying their decisions could affect the sustainability commission’s recommendations. “And I’m not going to deny the fact that there would be a tremendous fiscal impact, and at the last fiscal briefing we heard of a substantial [deficit],” she said, referring to the state’s $1.6 billion deficit for fiscal 2012.
The proposal would have cost the state $79 million in fiscal 2013 and $245 million by 2015.
The specific changes would have phased out the Corridor Funding Formula — the mechanism that has allowed the state to underfund its system for years — over a decade. Another change would enable the state to pay off its fiscal 2009 losses over the course of a decade, instead of the current five-year payback period.
Sen. Rich Madaleno Jr., D-Wheaton, urged the committee to pass the changes.
“Yes, the short-term pain of this [legislation] is greater,” he said, referring to the upfront costs. “But when you look at the long-term pain, unless we get out of the corridor we are giving a gift to our successors — an incredibly expensive required contribution.”
