Risky pension ploy could hurt taxpayers $2.1 billion cost: Best way to enhance state worker, teacher payouts is 401 (k)-type plan.

March 23, 1998

STATE legislators should not be stampeded into voting for an election-year bill pushed by teacher and state-worker unions that could do Maryland taxpayers irreparable harm. These unions want to boost pensions by as much as 66 percent -- with taxpayers handed a $151 million bill, escalating at 5 percent a year, and a future liability of $2.1 billion.

There's no question pensions for teachers and state workers need attention. Changes in Social Security laws have distorted the state's 1979 pension reforms and eroded retirement benefits for 115,000 employees. But the proposed solution is troubling. It is being rushed to passage with far too little study and understanding of complicated issues.

What the unions are pushing -- backed by politicians worried about re-election -- is a vast pension increase. To pay for these enhancements, the bill calls for some risky moves.

Half of the pension funds' stock market profits -- $1.2 billion worth -- would be used to enhance benefits. At the same time, the bill would raise the state's profit target from investments. lTC That's fine in a bull market. In a bear market, though, state taxpayers would have to make up the difference.

This is a dangerous strategy -- strongly opposed by state Treasurer Richard N. Dixon, a financial investment expert. It is also strongly opposed by the state Chamber of Commerce.

The state's pension board never truly evaluated other options; it submitted the same bill, word for word, pushed by unions last year. Few legislators understand the ramifications. An in-depth study ought to be undertaken.

One of the best ways to improve employee benefits would be a 401(k)-style plan under which the state would match worker contributions. This would give workers the power to control their investments, and they could take the account with them if they change jobs. And it would limit taxpayers' liability to just $51 million a year.

Nineteen years ago, legislators took the courageous step of reining in runaway pension costs. Now is not the time to reverse direction. Yes, improvements in state and teacher pensions are needed. But do it with care and consideration for taxpayers, too.

Pub Date: 3/23/98

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