State pension recipients won’t lose their money because of the downturn in the market, but decreased value of investments could force lawmakers to make fiscal decisions that could affect all taxpayers.
“Presuming we remain at this point, we’re looking an additional $215 million increase in the state obligation, on the top of the $1.3 billion already budgeted,” said Dean Kenderdine, executive director of the State Retirement and Pension System, to the Senate Budget and Taxation Committee on Friday.
Officials from the State Retirement and Pension System testified before the Senate Budget and Taxation Committee about the dire situation facing pension and retirement benefits face this year.
In the past three months, Maryland has lost 15 percent of its market investments, which are one of three components that pay for pensions along with state and employee contributions.
The state lost nearly 29 percent of its market investments in 2008, bottoming out at $27 billion.
To counter losses, pension system chief investment office Mansco Perry said he has increased the level of cash available to 10 percent of the total pension fund, which is far higher than what normal pension funds hold.
If investments don’t improve, the state has to either up its contribution or ask employees to chip in more into the fund.
“We need to come up with a plan to give everyone some encouragement,” said committee member Sen. Nathaniel McFadden, D-Baltimore City.
“Everyone’s struggling – the market, the state, the people. All options are on the table.”
Pension officials assured the senators that no state employee would lose their pension.
However, coming up with a way to pay for contributions, as well as cover the rising costs of retiree benefits, may put the cash-strapped state in an even greater bind.
Add to that long-standing issue of Maryland short-changing its pension funding by $450 million, and officials are looking at a very bleak picture.
“This is the most mournful and negative conversation we’ve had in this committee,” said Sen. Donald Munson, R-Washington County.
Some states like New Jersey are opting out of paying their pension contributions, but that could damage their bond rating, said Kil Huh of the Pew Center on the States, during his testimony.
Retirement health benefits also might be reduced as well in order to handle the fiscal crunch, said committee vice chairman Sen. Ed Kasemeyer, D-Baltimore and Howard.
Officials are banking that a market rebound later this year, as well as federal intervention could reduce the burden on the pension system and retirement benefits.
“I think what we need is a shot of optimism [in the market] and heavy stimulus,” Perry said.
