O'Malley pension & retiree health fix is modest
While some states are talking about throwing out traditional, "defined benefit" pensions altogether for state employees, O'Malley would preserve the bulk of the present setup. While some talk about switching state employees entirely to a 401(k)-like, "defined contribution" plan -- the kind that is common in the private sector, that doesn't guarantee a specific benefit -- I see no indication from the online material that O'Malley is talking about beefing up these supplemental programs -- which already exist for state employees -- to take the place of a traditional pension.
More on this next week, but here are a few thoughts. (Your mileage may vary, depending on exactly which plan you're in. These proposals appear to apply to "teachers/employees" generally, but there will be a lot of fine print.)
-- Participants in the system -- retired and current -- should get ready to pay more for prescription drugs.
-- The pension system would keep benefits for current retirees. For vested employees (with at least 5 years service) the compensation on which pension would be based would stay at the highest three years. For unvested employees and new hires it would rise to 5 years.
-- Current employees would retain benefits earned to date. For for future service they would have to choose between higher contributions or a lower multiplier.
-- O'Malley's goal is to achieve 80 percent funding for pensions (it's now in the 60% range) by 2023. This is a modest goal, perhaps too modest. It could be achieved more easily with a stock market rebound, but that's a crapshoot. The proposed changes to retiree health care would cut unfunded liability about in half, to $9 billion. But that's still $9 billion of unfunded commitments for state taxpayers.
-- This could be an important change for the Teachers' & Employees' Pension System, but it applies only to new hires: "Retiree compounded COLA capped at 3% if system achieves or exceeds its investment return target in prior year; 1% for years when rate of return is not achieved." COLA is the cost-of-living adjustment for inflation. If inflation takes off in coming decades, state retirees could see pensions fall behind the cost of living.
-- What about the governor's pension plan and that of the General Assembly? The governor's handouts say that, for these elected officials, "compensation commissions to review pensions." Will they share the pain?