Washington County Republican Del. Andrew A. Serafini Tuesday presented several bills that would revamp the state's underfunded pension system.
Maryland's leaders are wrestling with how to handle $19 billion in unfunded pension liabilities and another $16 billion in unfunded liabilities for retiree health care.
Earlier this legislative session, at the request of the House Republican Caucus, Serafini led a work group that explored the problem and possible solutions and heard suggestions from various labor and government organizations.
Although Gov. Martin O'Malley has proposed changes to the pension system, Serafini said during a recent interview: "I unfortunately don't think he went far enough to address the issues."
Sticking with a defined-benefit system, O'Malley has proposed two ideas:
State employees and teachers can keep paying 5 percent of their salary toward retirement, but have the multiplier determining their pension per year of service drop from 1.8 to 1.5.
Or they can increase their retirement contribution from 5 percent to 7 percent of their pay and maintain the 1.8 multiplier.
The changes only apply to active employees; retirees are not affected.
The bills Serafini presented Tuesday to the House Appropriations Committee, which oversees budget issues, offered a range of possibilities in place of the current defined-benefit pension system, including:
- A defined-contribution, or 401(k), system, in which contributions instead of results, or benefits, are known
- A cash-balance system, which is a defined-benefit plan with a lump sum or annuity
- A hybrid system that closely resembles the retirement plan for federal employees, which has both defined-benefit and 401(k) components
- A system with a choice between a cash-balance Guaranteed Retirement Income Plan, or GRIP, and a defined-contribution Retirement Savings Plan, or RSP.
Serafini said the GRIP/RSP option was the Republican Caucus's preference, but he urged lawmakers to consider the other choices, too.
Serafini told the committee that the Public Employees' and Retirees' Benefit Sustainability Commission has determined that the current pension system is "unsustainable."
As of June 2010, the state's pension system was funded at about 64 percent — well below 80 percent, which is considered a safe level, according to the commission's report.
"We need to create predictable and transparent funding," while reducing the state's unfunded liabilities, Serafini said Tuesday.
He said he has proposed shifting the pension burden from the state to local entities within a five-year period, but "I could take that out."
R. Dean Kenderdine, the executive director of the Maryland State Retirement and Pension System, testified against all of Serafini's bills.
He said the Retirement and Pension System doesn't get into political issues, but the proposals, if approved and implemented this year as proposed, would present significant problems in converting computer systems.
Sue Esty, the assistant director of the American Federation of State, County and Municipal Employees in Maryland, also urged the committee not to pass the bills.
She said the proposals are complex and need further review, but a defined-contribution system would make it tough for employees to retire.
"It's very difficult to argue that our pensions are exorbitant," Esty said.
Serafini also has bills that would:
- Require the state pension system's board of trustees to prepare a quarterly report on investments, starting Sept. 30, at an annual cost of no more than $5,000
- Eliminate the five elected positions on the State Retirement and Pension System's board of trustees that represent members and the position appointed by the governor to represent local governments, meaning no participants or beneficiaries of the system would be on the board. Instead, the governor would appoint six members representing the public.
- Replace the Investment Division of the State Retirement Agency and the position of chief investment officer with independent investment advisory firms.
How to read the bills
To read the pension-related bills Del. Andrew A. Serafini, R-Washington, has sponsored, go to http://mlis.state.md.us/#bill, enter each bill number and click on "Submit Query."
His bills are: HB 1170, HB 1289, HB 1290, HB 1317, HB 1318, HB 1326, HB 1344.
Then, click on the highlighted title — i.e., "House Bill 1170" — to read the text of the bill or scroll down to the "Available" link next to "Fiscal and Policy Note" to read a state Department of Legislative Services analysis of the bill. If the analysis isn't posted, it will say "Not available at this time."
To read other pension-related bills pending in the Maryland General Assembly, go to http://mlis.state.md.us/mgaweb/subjects.aspx. Under the subject list, drag down to "retirement systems" and click "select."