Pension crisis? Candidates vague on details

Even the Democratic gubernatorial candidate, heavily backed by unions, has a detailed plan to cut state pension liabilities that are billions of dollars underfunded. The proposal includes raising the retirement age for state employees and requiring more worker contributions.

The Republican candidate would go further, not only delaying retirement and making employees pay more but replacing traditional pensions with a 401(k)-like plan for many new government workers.

The two talked repeatedly and in some depth about pension solutions in their televised debate.

Unfortunately, this was in California.

In Maryland, neither Gov. Martin O'Malley nor challenger and former Gov. Robert L. Ehrlich Jr. has said much of anything about pensions. Neither has a plan. And the subject — some $25 billion in unfunded pension and retiree health care benefits owed by Maryland taxpayers — didn't come up in Monday's debate between the two.

It's not as if California is the only place with a big pension problem.

Maryland owes state employees and retirees pension benefits of something like $51 billion but as of 2008 had only $40 billion on hand to pay for it, leaving an $11 billion gap, according to a February report from the Pew Center on the States. And the 2008 measurement came before the stock market tanked.

Maryland was one of eight states fingered by Pew for having "failed to make any meaningful progress toward adequately funding [its] pension obligations" in the previous five years. That period includes part of the Ehrlich administration, if you're keeping track.

The picture for retiree health care benefits is worse. Maryland government retirees get the kind of medical benefits that are becoming rare in the private sector — even for folks who haven't retired. A retiree and spouse pay less than $160 a month for the plan even if they're too young for Medicare — a small fraction of the total premium expense. The state picks up the rest. Employees need only 16 years of service to get retiree medical coverage.

And Maryland's fiscal hole for retiree health care is even deeper than it is for pensions — $15 billion. That's more than the state's entire general fund budget this year.

Like most states, Maryland has put almost nothing aside to cover the retiree medical costs that will soar when baby-boomer government employees start leaving the work force. But accounting authorities — and common financial sense — say states must sock away money now to avoid insolvency or bankruptcy when the bills come due.

To start filling the pension and retiree health care craters in a way that would satisfy actuaries and bond investors would take more than $2 billion a year, Pew calculated. That's more than four times the projected state revenue from slot machines, even under optimistic projections.

So what would O'Malley and Ehrlich do to fix this huge problem — one they helped create?

We have little idea. Several weeks ago I asked both campaigns for pension-reform plans. I took O'Malley at his word when he talked about "fiscal responsibility during difficult times." If Ehrlich were going to refer to "a mountain of debt" in campaign ads, I figured he would have something to say about fixing the biggest debts of all.

"Please be as specific as you can," I said to both camps.

But both candidates responded by stating the obvious and making vague promises. (I'll put their full responses, such as they are, on my blog. http://www.baltimoresun.com/hancock)

Fixing the problem "will be a top priority," said O'Malley spokesman Rick Abbruzzese, who added that it must be done "through a process that involves all stakeholders." (Translation: The process will include the public-employee unions whose support O'Malley needs.)

Ehrlich reaches out to government workers, too, saying, "We cannot break our obligations to the state employees who have worked in good faith and accrued benefits under the current system," according to a statement the campaign sent in his name. He'll engage in "serious discussions with the legislature" and believes that "all sides in this debate should be given equal consideration."

Ehrlich will introduce bipartisan pension reform to the legislature, he said. For O'Malley's part, he and legislative leaders just appointed people to the Public Employees and Retirees Benefit Sustainability Commission, Abbruzzese said.

Blah blah blah. There have been so many bipartisan panels on pension reform that everybody has lost count. None of them ever did anything.

Of course pension reform must be done in consultation with the legislature. But that's no excuse for a lack of executive leadership.

Maybe unfunded entitlements are such political dynamite that it will take a crisis and blue-ribbon commissions to fix them not just in Annapolis but in Washington, too. But it would be good to know the opinions of the candidates who want to be your leader. Would they change the retirement age? Introduce a different system for new hires? Raise taxes to pay the obligations?

These guys are applying to voters for a job. They just flunked an important part of the interview.

jay.hancock@baltsun.com

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