Opposition is mounting on the City Council against Mayor Stephanie Rawlings-Blake’s latest sweeping pension change, which would switch new city employees from a traditional pension system to a 401(k)-style plan.
City Councilwoman Helen Holton, chair of the budget committee, has introduced an alternative plan that would allow workers who make less than $40,000 – more than 70 percent of all municipal employees -- to keep a traditional pension.
The alternative plan, which would require new workers to pay 5 percent of their salaries into the pension fund, would save the city $43 million over 10 years in upfront costs, according to Dan Doonan, an economist for the international union that represents many city workers.
“It is now clear that 401(k) plans have failed in a massive way,” he said.
Higher-paid city employees would have money they earn that’s more than $40,000 put in a 401(k)-style account, under Holton’s plan.
Andrew Kleine, the city’s budget director, said he agreed that Holton’s proposal would save the city millions in upfront costs, including administrative fees from financial firms that would handle the market accounts. But Kleine said that’s a small savings compared with the long-term risk the city would continue to take on by adding more workers to its pension fund.
If the city had enacted the mayor’s plan 10 years ago, Baltimore could be saving about $65 million a year, Kleine said.
“We protect ourselves against risk,” Kleine said. “I think we should take a realistic view.”
Holton’s proposal has gained three co-sponsors, including Council President Bernard C. “Jack” Young.
At a council hearing on the pension changes Thursday, Young told a packed crowd of union employees that they should be given a good retirement and compared them to city police officers and firefighters, who generally receive a better-paying pension.
“I worked as a trash man,” Young said to loud applause. “I know people who lost limbs. When they’re trying to clean up, the drug boys tell them, ‘If you clean that stash up, and my stash is gone, I’m [going to] kill you.’ We’ve got people who are afraid. They have the same kind of risk factors as going into a burning building or police chasing someone down a dark alley. We have to make sure that when they retire they have a nice little pension.”
The pension system for municipal employees faces $681 million in unfunded liabilities, according to city documents. Fully funded in 2003, the system has weakened each year and is now only 67 percent funded.
But Holton said she is tired of the city relying on negative long-term projections to shortchange city workers.
“This doom and gloom is just not fair and it’s becoming a tired argument,” she said Thursday.
City finance director Harry Black said he was willing to negotiate with the council and come up with a compromise.
Rawlings-Blake introduced her latest pension change in July. By implementing the switch, the city expects to save $1 million in fiscal year 2014, with increased savings each year until 2022, when city officials say they will save $7.8 million.
Under the proposal, new city employees would be required to contribute 5 percent of their salaries to their retirement accounts, with the city contributing an additional 4 percent.
The legislation, which must be approved by the council, does not apply to current employees, elected officials or members of the city's police or fire department.
The legislation is the latest move by Rawlings-Blake to overhaul the city's various pension systems. Earlier this year, the council passed an administration bill that requires current city workers to start contributing part of their salaries to their pension fund.
That bill requires non-public safety workers to contribute 1 percent of their salaries to the pension fund next fiscal year, and increase those contributions each year for five years until workers contribute 5 percent.
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