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Md. pension shortfall: It's worse than you think

12:30 PM EST, December 15, 2012

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R. Dean Kenderdine's attempt ("Pension chief: Mossburg ignores reforms," Dec. 10) to argue the facts in Marta Mossburg's excellent Dec. 5 column, "Maryland's Debt Bomb," is ludicrous on the face of it. Ms. Mossburg cited the State Budget Solutions' national State Debt Study which, using two-year-old data, actually understated the pension debt.

Extrapolating from the latest full-year data for 2011 from the U.S. Census survey of public pensions, I put Maryland's unfunded pension debt at $78 billion as of this year. Results through the second quarter indicate that number may be optimistic.

From 2007 through 2011, workers "contributed" more than $2.3 billion to pensions, and those running the system blew 98 percent of it. Yet they doled out $869 million in "Other Payments" over that time.

Acknowledged pension obligations increased more than $7 billion and worst of all, while "Active" members paying in dropped about half a percent, the number of beneficiaries increased almost 12 percent. My calculations are based on the pension systems' own assumptions and performance.

When you look at reality the debt must be even worse. Officially Maryland's pension debt is estimated based on investments getting 7.75 percent a year forever. In reality that has been only 4.74 percent over the past 10 years.

The methods used by economists that Mr. Kenderdine attempts to refute are universally accepted because they eliminate the politically influenced assumptions and deceptions that let legislators and governors use pension funds as hidden loans that will not come due until long after they are out of office.

In a recent study, Boston University professor Jack M. Beermann refers to public pension "pathology" and warns that "Retirees face the risk of reduced pension payments and current employees face the risk of receiving less generous retirement benefits than the promises that they have been depending upon."

Other studies this year by economists at the Cleveland Federal Reserve Bank, Harvard Kennedy School Mossavar-Rahmani Center, Notre Dame and Maastricht universities, and The Center for Retirement Research at Boston College, confirm that without fundamental reform, public pension funds eventually will run out of money.

Maryland is a classic case of the "moral hazard" cited by pension actuaries victimizing taxpayers and government workers. Gov. Martin O'Malley's dumping of teacher pension debt on local governments this year is hard evidence that politicians know it is hopeless.

None of the "reforms" Mr. Kenderdine touts have had any significant impact on existing pension debt to date, other than possibly in Rhode Island.

Maryland taxpayers and younger government workers are going to be burdened with this debt for decades unless they force real reform now.

Frank Keegan, Baltimore

The writer is editor of State Budget Solutions.

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