State workers decry new pension plan

Changes mean they pay more, will receive lower benefits

  • Dorothy Peterson, 39, who works for the State Department of Assessments and Taxation, was among workers worried about smaller paychecks after cuts to teh state budget.
Dorothy Peterson, 39, who works for the State Department of… (Algerina Perna, Baltimore…)
April 06, 2011|By Annie Linskey and Liz F. Kay, The Baltimore Sun

Maryland's General Assembly is poised to make the deepest cuts to the state's retirement system in nearly three decades, asking most of the roughly 170,000 teachers and government employees to pay more into a pension plan that is about to become less generous.

The nearly 120,000 retirees also will see reduced benefits: They'll pay more each year for prescription medications.

The overhaul pains the same people, labor unions and teachers, who helped Democratic Gov. Martin O'Malley to a double-digit re-election victory in the fall. It's a point the union leaders and even the rank and file have taken great pains to remind lawmakers this session.

"We voted for them, and we're not getting appreciated at all," said Josephine Ball-Sivels, a clinical nurse specialist who retired in 1996 after 32 years with the state Department of Health and Mental Hygiene. She said changes to the plan are like "being kicked in the shin."

Ball-Sivels said she had chosen a state job that offered better retiree benefits over private-sector jobs that paid more upfront. "You could go work anywhere else and make much better money, but when you retire you're going to have very good benefits. Now you have all these problems you have to worry about."

Changes to the plans are intended to stabilize a retirement system so underfed that it is causing Wall Street analysts to rethink Maryland's coveted top bond rating. The system only had 64 percent of the resources needed to cover obligations, according to figures from June 30.

And the situation will only get worse.

This year the state is required to make a $1.6 billion payment to the fund. Left untouched, the state's annual contribution is projected to gobble even more from the operating budget: In 10 years, the same payment is projected at $3.5 billion.

The proposal before the legislature is a rewrite of pension changes O'Malley proposed in January. It's more generous in many areas than his plan and, like his suggestion, leaves workers with the type of defined benefit plan that is becoming increasingly rare in the private sector.

The House of Delegates could vote on the pension rewrite as early as Thursday, with the Senate tentatively set to vote on the measure Friday.

Leaders from the two largest state workers unions slammed the plan, saying that workers would suffer. The head of the 71,000-member Maryland State Education Association called the plan "totally unacceptable."

Sue Esty, assistant director of the American Federation of State, County and Municipal Employees in Maryland, said she's "certainly hearing from our members" who are concerned about the plan, particularly increased contribution.

The most immediate impact: On July 1 paychecks will contract, as almost every employee will move from paying 5 percent into the pension plan to 7 percent. Workers this year get a one-time $750 bonus to help smooth the transition.

But many said they're worried about the smaller paychecks.

"I have to work a little longer when I could be home baking," said Dorothy Peterson, 39, a 19-year veteran at the state Department of Assessments and Taxation. "The way this economy is going, you're going to need every penny and then some."

Other employees, like Rob Wagner, saw the increase in contributions as a reasonable way to rescue the system. "It's a pension system that's overwhelmed," said Wagner, who joined DHMH's information technology staff from the private sector five years ago.

State workers have already had three years of furloughs. This year government offices will be shuttered for several days, but workers will be paid on those days.

Another change current employees will one day feel: Their cost-of-living benefit will become less generous. Currently the COLA is tied to inflation and capped at 3 percent, a ceiling that has been hit eight times since 1990.

Under the new plan, the COLA would be tied to inflation and capped at 1 percent. If the plan's investment returns meet the target, currently 7.75 percent, the COLA would be capped at 2.5 percent.

The most profound cluster of changes won't impact current workers. Those hired after July 1 of this year will have to wait 10 years until they are vested in the plan and can draw benefits. Those currently employed by the state only need to wait five years.

The retirement age changes too, but only for newly hired workers. Current employees can retire after 30 years at any age or once they reach 62 with at least five years on the job. Future employees will have to wait until they are 65 to retire (with 10 years on the job), or they can leave when their years of work plus their age equals 90.

Thomas Young, a 62-year-old state worker, is skeptical about the reason for increasing the age, saying that the state is "hoping people will be deceased prior to being able to receive retirement."

The most controversial shift in the plan also only applies to new employees. The proposal would create a two-tiered system where new hires will calculate their pension checks by multiplying their years of service by 1.5. Current workers will keep their 1.8 multiplier.

New employees will also have to work for 25 years before they are eligible for the full health care benefit. Currently, workers receive the full benefit after 16 years of work.

Retirees are worried that the increased prescription drug cost will cut into their fixed incomes. Retired teachers, on average, receive $1,483 a month from the state. Retired workers receive an average of $940 a month.

Under the new plan they'll have to pay 25 percent of the premium instead of 20 percent. Their co-pays increase. And the cap for annual drug costs goes to $1,500 for a single worker and $2,000 for a family. Now the cap is $700.

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