A dose of state pension fund blues has been added to the bad financial news for Maryland state government that has dribbled out over the past weeks — lower tax revenues, higher debt, $1 billion in transportation cuts, and similar cuts from the rest of budget this year and next.
On top of all that, the state will have to pony up $88 million to the pension fund it should have put in this year, and the $36.5 billion state pension system, which is down 5.4 percent in value in 2008, is experiencing losses from its holdings in Freddie Mac and the AIG insurance group, among others.
And Gov. Martin O’Malley and Comptroller Peter Franchot thought it couldn’t get any worse after discovering last month the state was facing at least a $500 million budget gap that could get as bad as $1 billion.
“We have not had a good morning,” with all the bad news on Wall Street, said Dean Kenderdine, executive director of the state retirement system, told the Senate Budget and Taxation Committee Monday. The Dow Jones Industrial Average lost more than 500 points Monday.
“If you’re a shareholder [of Freddie Mac], you’re taking a pretty good hit,” said Senate Majority Leader Ed Kasemeyer, vice chairman of the committee. The governor should put out a statement “putting people’s minds to rest,” Kasemeyer said. “It’s very easy to get scared.”
“The current market situation is very hurtful” to the pension fund, Kenderdine said, but the system would “smooth over” these poor results over a five-year period.
The state already contributes more than $1 billion a year to the retirement system for 350,000 current and past employees of state and local governments. Last year, it switched actuarial methods to determine how much should be set aside in 2008, but a computer glitch by the old actuary underestimated the amount by $88 million.
Kenderdine and the pension board informed O’Malley and the legislature about the $88 million problem in the spring, but it was too late to change the budget. Now, the plan is to spread the missed contribution in annual payments of $5.6 million over the next 25 years. This means next year taxpayers will be putting close to $1.1 billion into the pension fund.
[email protected]
