More than 115,000 retirees and beneficiaries collecting state pensions won't see an increase in their checks next month — a first since annual cost-of-living adjustments were put in place in 1971.
Retirement payments were actually set to drop slightly in lockstep with the Consumer Price Index, a common measure of inflation that fell in 2009 after rising for more than half a century. Instead, the General Assembly decided to hold the benefits steady and plans to subtract from any increase next year the amount added this year to make up for deflation.
Virginia Crespo, 63, understands the reasoning. Deflation also kept her Social Security payment from rising in January as it normally would. The trouble is, her cost of living has gone up, not down, she says.
Health care is driving her expenses up, as is the case for many retirees. The cost of her health insurance premium increased by $44 a month in December; at the same time, her co-pay for three months of blood-pressure medicine jumped from $10 to $50.
"There's going to be nothing to balance out that amount in July," said Crespo, a Millersville resident who retired eight years ago from the Anne Arundel County public school system. Teachers' pensions are handled by the state. "With less money in the check, you have to be much more cautious."
Among the two-thirds of public pension plans across the nation with automatic cost-of-living adjustments, the Consumer Price Index is a common benchmark, said Keith Brainard, research director of the National Association of State Retirement Administrators.
Some public pension plans set floors or ceilings on the increases, though. The Baltimore City employees pension plan, which covers everyone but retired elected officials, firefighters and police, has a minimum cost-of-living adjustment of 1.5 percent, which is what beneficiaries are getting this calendar year.
And because Baltimore County's retirement system has a different way of tracking Consumer Price Index changes than the state, its retirees will get a 2.7 percent increase in their checks come July. Baltimore County looks at where the index stands in December compared with the previous December — up, in this case. The state follows the annual average, which was down.
Maryland's State Retirement Agency has received about 160 calls from retirees — some confused, some upset — since alerting them that the cost-of-living adjustment in July would be zero.
"Obviously, people aren't happy, and we understand that," said Michael D. Golden, director of external affairs for the agency, which administers the retirement pension system. "As I've said in some of my communications with folks, this is clearly better than the alternative."
Without the legislature's intervention, payments would have fallen about four-tenths of a percent. That's the equivalent of about $6 less a month for the average beneficiary collecting about $20,000 a year.
Such a drop might seem like nothing for most workers, said Patrick Moran, director of AFSCME Maryland, part of the American Federation of State, County and Municipal Employees union. But for retirees on a tight budget, a $6 reduction could mean the difference between taking their medications as prescribed or skipping days to stretch the doses out, he said.
"There's not a lot of disposable income in those numbers," Moran said.
Clara A. Smith, 65, a retired state security officer from Northeast Baltimore, said that's why she's disappointed she can't count on an increase in July. Her pension — $891 a month after taxes and deductions — isn't big enough to leave her with any savings, even with Social Security to supplement.
She doesn't have a lot of options for cost-cutting, but she does what she can. She buys milk by the gallon rather then half-gallon for the lower unit price, then freezes some of it so it won't go bad.
"Everything I go to get at the market, it's higher," said Smith, who isn't seeing any of the deflation the Consumer Price Index measured. "Bread, milk, everything is higher. So I don't know how they determine it."
Falling energy costs, from heating oil to gasoline, were a big factor driving the index down last year. Many other items continued their upward climb, however. Consumers' average food costs increased nearly 2 percent in 2009, according to the index. Their health care costs rose more than 3 percent.
Because the elderly need more medical care than the young, the Consumer Price Index probably underestimates slightly the actual change in the cost of average retired life, said Bart Hobijn, an economist at the Federal Reserve Bank of San Francisco. But even a measure of inflation designed with the elderly in mind wouldn't be a panacea, he said.
"There's so much variation in the spending patterns among the elderly, you will always find people who say, 'This doesn't fairly reflect the increase in my cost of living,'" Hobijn said.