By Luke Broadwater, The Baltimore Sun
8:26 PM EDT, May 21, 2013
With the city retirement system short hundreds of millions of dollars in unfunded liabilities, officials say they are likely to begin requiring municipal employees to contribute to their pensions.
"Pretty much everyone is in agreement that it's fair," said Carl Stokes, chairman of the City Council's finance committee. "Those who are benefiting from the pensions should be contributing to them."
The finance committee is scheduled to hear testimony Thursday on a proposal by Mayor Stephanie Rawlings-Blake to require thousands of civilian employees to begin making contributions.
Unlike their counterparts in other jurisdictions, city workers currently make no such payments.
Stokes expects the plan to pass.
The Employee Retirement System — which has existed since 1926 — is facing nearly $700 million in unfunded liabilities. The system covers about 19,000 city workers and retirees from nearly every city agency except the police and fire departments, which have their own system.
The proposal would require non-public-safety workers to contribute 1 percent of their salaries to the pension fund next fiscal year. The contributions would increase each year for five years until workers were contributing 5 percent.
The legislation would eliminate the so-called "variable benefit" for civilian retirees, which raises benefits when the fund performs well but doesn't cut them when returns are poor. The change would eliminate extra payments retirees currently receive if the fund earns more than 6.8 percent in a year.
To help compensate for the changes, Rawlings-Blake is proposing a raise for employees of 2 percent a year for five years.
Stokes said he supports the raises as well.
"Hopefully, it's a 2-to-1 gain for employees," he said.
Officials said the pension change and pay increase would cost the city about $180,000 next fiscal year but begin saving money after that: $2.1 million in 2015, $4.4 million in 2016, $6.5 million in 2017, and $8.5 million in 2018.
The savings would help the city fund property tax cuts of 22 percent over the next decade, said Ryan O'Doherty, the mayor's spokesman.
Glenard Middleton, director of the union that represents city workers, did not respond to requests for comment.
David Draine, a senior researcher at the Pew Charitable Trusts who studied pensions in 61 cities, said many cities and states have required employee contributions for years. Those that haven't are moving in that direction now, he said.
"This is definitely in line with what we've been seeing," Draine said, adding that jurisdictions also have been targeting variable benefits. "These pension benefits looked really great in the '90s when investments were terrific. But when the dot-com bubble burst, the states and cities realized they would be too costly for what they could afford."
Baltimore is the only large jurisdiction in Maryland that does not require municipal employees to contribute to their pensions.
State and Baltimore County employees contribute 7 percent of their salaries to their pension funds. In Montgomery County, employees contribute 4 to 8 percent of earnings. Anne Arundel employees make 4 percent contributions. Howard County employees contribute 2 percent to 3 percent.
Baltimore workers contributed 5 percent of their salaries until the late 1970s, when then-Mayor William Donald Schaefer changed the system. The city reduced benefits but eliminated employee contributions in a plan to save $45 million over 15 years.
Councilwoman Mary Pat Clarke said she's not sold on all the changes proposed now. She noted that the city recently shifted to a cost-saving new health care plan that charges employees lower premiums but higher out-of-pocket fees. As a result, the city expects to save $20 million.
Clarke questioned whether the city is cutting too many benefits too quickly.
"Why try to save [money for] city government 20 years out on the backs of our employees and retirees?" Clarke asked. "Everyone has already experienced in this year's budget a radical increase in our personal obligations to health care. I think this is excessive."
A consultant for the city found Baltimore offers greater pension benefits than other local jurisdictions.
The consultant reported that a city worker making $40,000 a year earns an average of $4,664 in pension benefits annually, compared with $4,326 for a worker in Howard County, $3,324 for a state worker, $3,194 for Anne Arundel, $2,665 for Harford, $2,650 for Baltimore County, $2,502 for Prince George's, and $2,315 for Montgomery.
Draine, the Pew researcher, said Baltimore's pension system was relatively well-funded several years ago, but that changed during the economic downturn.
When he studied 61 cities' pension systems in 2009 — among which he found a $217 billion cumulative funding gap — he rated Baltimore's pensions among the best-funded in the country.
Today, however, Baltimore's pension system for municipal employees faces $681 million in unfunded liabilities, according to city documents. The system, which was fully funded in 2003, has weakened each year and is now only 67 percent funded.
Stokes said proposed changes to pensions reflect a changing American workforce. While the municipal employee of decades ago might expect to stay with city government for years and count on a solid retirement, younger workers of today might plan on staying in a position for only a few years.
In Baltimore, city workers are eligible to retire after 30 years on the job or at age 65. Though workers accrue their pensions at varying rates, an individual can expect to receive more than half of his or her salary on average in retirement.
The pension legislation is part of a 10-year plan Rawlings-Blake says is needed to fix city finances. The mayor wants to eliminate a projected long-term $750 million budget shortfall while cutting property taxes by more than 20 percent and raising salaries by 10 percent over the next five years.
She has said that city government is weighed down by "outdated" benefits that "have crippled our ability to pay workers what they truly deserve in their paychecks."
Later this year, the mayor has said, she will introduce additional legislation to create a 401(k)-style retirement plan for new civilian city employees and a "hybrid" plan for new firefighters and police.
Copyright © 2013, The Baltimore Sun