Hogan proposes 401k option for new state employees

Gov. Larry Hogan is proposing legislation to allow new state employees to opt into a 401k-style retirement plan rather than a traditional pension, a choice he said would help stabilize the state's pension fund and give workers more flexibility.

"Protecting the integrity of our pension system and keeping the promises made to our hardworking state employees will always be a priority of this administration," Hogan said in a statement Monday. "This legislation will safeguard pension contributions and create a long-term and stable structure that will meet the needs of retired, current, and future state employees."


Maryland's $45 billion pension system provides monthly benefits to former state and local government employees, including retired teachers and state police.

The Republican governor's proposed 401k-style alternative would not be available to current employees or teachers. Currently, state employees can voluntarily contribute to a 401k, on top of their pension.


The measure would need approval from the Democrat-controlled General Assembly to become law.

In the wake of the financial crisis in 2008, other states shifted to 401k-type plans to deal with underfunded pension programs. While some other states made savings plans mandatory, it would be voluntary for state workers under Hogan's proposal.

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Patrick Moran, president of the state workers' union AFSCME Council 3, roundly criticized the governor's proposal. He said creating a two-track system would hurt the state pension program and diminish workers' financial security as they age.

The only people to benefit would be money managers who would oversee the 401k investment funds, Moran said.

The legislation would let state employees and the government pay into individual retirement accounts — a so called "defined contribution" plan.

Hogan's office said employees could then take those accounts to their next job, making switching careers easier.

Traditional pensions are known as "defined benefit" plans because they guarantee to pay out a certain amount to retirees.