Agency says mechanism fuels growing pension deficits
The mechanism, called the Corridor Funding Formula, allows the state to pay less into the system than it owes in retirement benefits for current and future retirees.
Pension system officials are asking lawmakers to immediately enact legislation that would phase out the formula over the next 10 years.
Otherwise, “The amount of [unfunded] contributions will inch up over the years, pushing the burden onto future taxpayers,” warned Brian Murphy, president of the state pension’s actuarial firm, Gabriel Roeder Smith and Co., at a meeting of the Special Joint Committee on Pensions. He said the state needs to begin paying what it owes up front, instead of partially funding contributions and pushing the growing debt down the road.
“Pay me now or pay me more later,” Murphy quipped.
Retirement benefits for state employees are currently funded at 63 percent over the next 30 years — a precipitous drop from the roughly 94 percent funding level in 2002, the year the formula was adopted. In dollars, contributions for retirement benefits are roughly $18.4 billion short.
The corridor formula came about when former Gov. Parris Glendening wrote a fiscal 2003 budget that didn’t fully fund the state’s pension contributions.
The General Assembly, legally barred from adding to the governor’s budget, created the formula to help plug the difference.
“The problem with that is when you really sit down to do that math, you never get caught up [on payments],” said R. Dean Kenderdine, executive director of the Maryland pension system.
Pension officials have long warned the General Assembly that the formula is at the root of Maryland’s pension problems, Kenderdine said.
But dozens of bills that would have scrapped the formula have failed over the years. Last year, the legislature decided to delay systematic reform by appointing a commission to study the issue.
“When the chickens really started coming home to roost on this … coincidentally was in the years where the state’s budget situation [soured], so the state’s ability to get itself out from under this corridor method has been [derailed],” Kenderdine said.
Committee members said they would consider the pension system’s recommendations after the commission reports its findings.
Gov. Martin O’Malley said Tuesday that fixing the pension system will be a focus in the General Assembly this year.
