The Maryland State Retirement and Pension System—the state’s largest pension fund, covering a number of different employment categories but not teachers or law enforcement—reported an unfunded actuarial accrued liability of $19.7 billion as of June 30, 2017. This means that even if the state were to continue its current level of pension funding, the Fund will be nearly $20 billion short of covering its expected obligation to current state workers. This reflects a 166 percent increase in unfunded liability since June 30, 2006, when the Fund reported a net accrued liability of just $7.4 billion.

Overall benefit costs for a typical Maryland state employee have risen dramatically in the last 12 years. As of FY 2017, the pension retirement benefit cost made up 32 percent of that cost, the single largest component. (See Figure 1). Maryland’s state contribution for pensions was $2,561 per employee in FY 2006. In FY 2017, it became $11,192 per employee. Despite the reduction in the number of state employees in the State Personnel Management System (SPMS), Maryland’s total contribution rose from $112.42 million in FY 2006 compared with $436.83 million in FY 2017. And yet Maryland continues to fall behind in its promised obligation. A new policy is needed that will treat state employees fairly while protecting state taxpayers. 

To shed light on how to restructure Maryland’s state employee benefits, the Maryland Public Policy Institute studied the recent trends and characteristics of Maryland’s public sector employees. Based on these findings, the Maryland Public Policy Institute concludes that Maryland’s pension benefit system is out of date and has failed to attract new talent to the public sector. This report recommends restructuring Maryland’s public-sector employee benefits to reduce pension cost and accommodate the changing demands of the new generation. This report offers a list of non-traditional benefits that Maryland government should consider embracing to replace pension benefits.