The pension squeeze

Our view: Baltimore and its unions should agree to affordable pension system

March 23, 2009

For years, Baltimore police officers and firefighters have been the beneficiaries of a pension formula tuned to make them happy. When stock prices rose, pension benefits did the same. When stock prices declined, pensions held their gains.

But the global recession has hit this system hard. With the market down nearly 50 percent from its 2007 highs, the police and fire pension fund has fallen to half the level it needs to be to continue paying benefits. Making up that shortfall under the existing pension plan would cost the city $62 million a year beyond an already heavy pension burden. The city is offering a 1.5 percent annual increase in place of the existing variable annuity benefit. The unions recognize that change is needed but want a 2 percent increase.

Given the city's precarious economic condition, the unions must understand that's too much. The 1.5 percent increase would push pension expense up $7.5 million on top of an already budgeted $82 million next year. A 2 percent increase would throw pension costs $25 million higher because the increase would trigger matching clauses in other city retirees' pension agreements. That increase could require massive cuts in city programs. It could come close to wiping out the entire budget of the city's Department of Recreation and Parks, for instance.

The city has an obligation to treat pension recipients fairly, and it has been more than fair thus far. The 6,000 police and fire retirees collect a generous average of $33,000 a year. Now, union officials should recognize that the days of extraordinary pension increases have to end.

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