When the public became outraged that a member of the Baltimore County Council would retire with a $54,000-a-year pension for life, then-Councilman Kevin Kamenetz moved to enact limits council pensions — but not for him or any of his colleagues. When another councilman offered a proposal that would have reduced the benefits he was to receive, he voted against it.
This year, County Executive Kevin Kamenetz's administration is advocating state legislation that would limit the far less generous pensions earned by at least 150 who worked for Baltimore County — and, in the bill's original form, sought to do so retroactively. Put another way, the county executive who safeguarded his own pension from his 16 years as a councilman, and who took advantage of another law he voted into existence to allow him to bank that pension while serving as executive and earning a new pension besides, sought to take money out of the pockets of others, some of whom earn benefits of as little as $1,000 a month.
The administration dropped the retroactivity provision after the attorney general's office advised that it was unconstitutional, but that didn't erase all the problems with the legislation. Hundreds of current and former county workers made financial decisions based on state law that the county is now seeking to overturn without sufficient redress. The legislature should reject this bill.
The group of workers in question are affected by a state law that governs how pension credits are transferred when employees switch from working for the state or one county government and take a job with another. Some government pension systems in Maryland require employees to make contributions form their paychecks in order to be eligible for benefits, and some do not. The dispute here is over how to handle cases when someone moves from a non-contributory system to one, like Baltimore County's, that requires contributions.
The longstanding principle in state law is that workers should be able to transfer their pension credits but should do so in a way that recognizes the difference between contributory and non-contributory systems. In general, contributory systems offer better benefits since the workers have been paying into the pension fund along with the local or state government in question. Thus, state law has long stipulated that a worker moving from a non-contributory system to a contributory system should have his or her eventual benefits reduced to recognize that difference. The rule is that the benefits should be reduced by the value of the contributions the employees would have made, plus interest. The key question is how much interest.
The Kamenetz administration is seeking to change a 2007 state law that specified that the calculation should be made based on what is known as "regular" interest, that is, the amount that the pension system pays on employee contributions. In Baltimore County's case, that is 5 percent. But the county wants to charge the workers based on what is known as "transactional" interest, which is the assumed rate of return of the pension system's investments, currently 7.875 percent. Moreover, the county wants those interest calculations compounded monthly rather than annually, which effectively doubles the amount that retirees are charged for their years in non-contributory systems.
County Administrative Officer Fred Homan, who testified about the bill today in the House Appropriations Committee, can make a reasonable case that the higher rate of interest makes more sense. Indeed, the county's Employees' Retirement System Board adopted a policy to that effect as far back as 1991. (Whether it was actually following that policy for much of that time is in dispute.) But the fact remains that since 2007, state law has explicitly said otherwise, and prior to that, both the attorney general's office and the State Retirement Agency advised the county that state law implicitly required the use of regular interest. Those opinions were affirmed by the Baltimore County Board of Appeals. (A subsequent ruling against the county from the Harford County Circuit Court, which is under appeal, does not directly address the issue.)
Despite the recent effort to make the legislation pass constitutional muster, it still likely fails. The county now wants to charge "transactional" interest for all years prior to 2007, "regular" interest for 2007-2012, and transactional interest thereafter. That doesn't take into account the repeatedly affirmed opinions that the county should have been applying "regular" interest all along, and it fails to recognize that the employees in question made the decision to transfer their pension credits to Baltimore County based on state law as it existed at the time. If the law Baltimore County now wants had been in effect, those decisions might well have been different.
What's most astonishing about the county's efforts to short these retirees of their benefits is how tiny the amount of money involved really is. The dispute amounts to a matter of $400,000 a year, or less than 0.3 percent of the system's $150 million in annual payments. By comparison, Mr. Kamenetz, should he serve two terms as executive, stands to walk away with a $101,000 annual pension and a $328,000 lump sum payout. It is simply astonishing that a county executive who has so diligently protected his own pension would countenance such an effort to go after the benefits promised to others.Copyright © 2014, The Baltimore Sun