Broken Pension Promises are Nothing New

Gabriel J. Michael Jan 31, 2014

The news that Governor Martin O'Malley's new budget proposes to cut $100 million in funding to the state pension system came as a surprise to many. Union leaders have been taken aback by what they view as the state reneging on a promise made during the 2011 pension reforms, and the system's Board of Trustees opposes the governor's proposal.

 

Let's recap: in 2011, the General Assembly increased employee contributions, vesting periods, and made other changes to the state pension system. We were told that these changes would lead to a funding level of 80 percent (the minimum for a system to be considered healthy) by 2023.

 

In 2013, the General Assembly finally passed legislation to begin phasing out the brain-dead “corridor funding” method that has consistently underfunded the pension system for a decade. However, the legislature also cut $100 million from the state's portion of funding to the pension system. We were told that these changes would delay the funding goal by one year, i.e., we would reach 80 percent by 2024.

 

This year, Governor O'Malley's budget proposes to cut $100 million from the state's portion of funding, once again delaying the funding goal by a year. Now we're told the pension system will be 80 percent funded by 2025.

 

Notice a pattern here?

 

I did, and I said as much in a report published late last year, in which I placed blame for Maryland's pension woes squarely at the feet of political leaders, who “are unwilling or unable to consistently allocate the required funding for pension systems on an annual basis.”

 

In response, I was attacked by the pension system's management, who accused me of “cherry pick[ing] statistics and pull[ing] numbers out of the air.” (I later received a written apology from the system's spokesperson). In November, pension system management proudly cited the “80 percent funding by 2024 statistic.” Yet here we are, just three months later, and already an elected official has made that statistic obsolete.

 

Union leaders and pension system management should have seen this coming. The same thing happened last year, and if Governor O'Malley gets his way, the $100 million cut in funding will be permanent. If this is how a Democratic governor who passed key pension reforms treats the pension system's health, how can state employees or the public at large have any confidence in projections of future funding levels?

 

Keep that in mind next time someone makes a promise about what the status of the pension system will be ten years in the future.