Republicans in the House of Delegates proposed legislation Tuesday that they say would shore up the state employee pension system while cutting the risk that taxpayers will be left on the hook for losses.
The House GOP leadership is backing a package of bills that would, among other things, steer the $40 billion system away from what Republicans consider overly risky investments and lower the long-term assumptions of the retirement plan's earnings on its investments.
But pension system officials say they believe the system is on the right track after legislation was passed two years ago that made changes, including an increase in employee contributions, and trimmed cost-of-living raises.
"The reforms of 2011 have placed the defined-benefit plan of Maryland on a path of sustainability," said R. Dean Kenderdine, executive director of the State Retirement Agency.
The GOP package is the product of a work group of the House Republican caucus that met after last year's General Assembly session to formulate proposals to revamp the pension system, which covers about 350,000 retired and active state employees, teachers, judges and law enforcement officers.
Republican delegates at a news conference Tuesday criticized the current system as underfunded and overly reliant on risky investments. They said their package of bills would put the system on a better footing.
"It would prevent some of the gambling that is now taking place with pensioners' money," said House Minority Whip Jeannie Haddaway-Riccio of the Eastern Shore.
The bills' prospects in the Democratic-dominated General Assembly are uncertain at best, but the package gives the Republicans an opportunity to shed some light on what has been a persistent problem in recent years: an underfunded pension system with an inconsistent investment record.
According to the nonpartisan Department of Legislative Services, the pension system now has about 60 percent of the funding it will need to meet its long-term obligations to retirees. A pension reform bill adopted in 2011 made a series of changes — including an increase in employee contributions — that are expected to return the system to a more stable 80 percent funding level by the mid-2020s.
Republican lawmakers argue that further reforms are needed, charging that Gov. Martin O'Malley and the Democratic leadership of the General Assembly aren't interested in addressing the issue.
One bill, sponsored by Howard County Del. Gail H. Bates, would require the state pension board to change its assumed rate of return from its current 7.75 percent to 6 percent. Such a move would, at least in the short term, force some hard choices on the state: either increasing its yearly contribution to the system, requiring employees to contribute more or cutting benefits.
Maryland's assumption is roughly in line with those of most state pension systems, but Bates contended that it would be more realistic to use the 6 percent federal standard for corporate plans. A pension plan's rate assumption seeks to predict what the system will earn per year over the long term rather than forecast performance in a particular year.
Another bill. sponsored by Anne Arundel County Del. Nicholaus R. Kipke, would limit to 10 percent the amount of the plan's assets that can be put into so-called "alternative investments" such as hedge funds and venture capital. The system now has more than 20 percent invested in such instruments.
Meanwhile, a measure proposed by Haddaway-Riccio would add two local government representatives to the pension board to reflect last year's shift of part of the burden of teacher pensions to Baltimore City and the counties.
Kenderdine said the pension board had not yet reviewed the proposed legislation. But he said he anticipates the trustees would have "very serious concerns" about any proposal limiting the ways they can allocate the system's assets.
Kenderdine said he knew of only three states that set their expected rates of return in law instead of leaving that decision to pension trustees.