Employees of Maryland May Need a Bail Out in the Future

Blacksmith101 · May 2, 2019

Employees of Maryland May Need a Bail Out in the Future.

Anyone expecting a pension from Maryland should be treating the tax payers very nicely because Maryland has been doing it's thing with the pension numbers. I know I will be thinking about the MSP LD when they come asking for more tax money.

Maryland’s State Pension May Be Only 35 Percent Funded
https://www.mdpolicy.org/policyblog/detail/marylands-state-pension-may-be-only-35-percent-funded

j_h_smith · May 2, 2019

Does this surprise anyone? I'm kinda surprised it's that high. Corruption doesn't end with a DA or a mayor. It's a systemic problem and won't go away until the citizens demand a change. Which in my opinion will not happen in my lifetime. Republicans are so rare in the city, most are never seen on the ballot.

TheBert · May 2, 2019

Glad my wife opted for the 403b when she started here state job.

Glaron · May 2, 2019

Just raise taxes. :innocent0

Uncle Duke · May 2, 2019

This describes every state in union, to at least some extent. Some are far worse than others.

Norton · May 2, 2019

That will be one way to completely finish off the school systems, start telling teachers that their pensions that they largely fund out of their own pockets as a condition of employment aren't going to be there.

Watch a few thousand teachers decide all at once that they simply are done.

PapiBarcelona · May 2, 2019

Glaron said:
Just raise taxes.

Oh it's coming sooner or later, especially up my way at the county level.

Besides school problems the public up my way generally has no idea how bad staffing levels are in the all volunteer fire and rescue.The training requirements and hours at the station have pushed a lot of people out.

I suspect in 6-7 years or less Harford will not only have a few more County run Medics but at least 1 full time paid county run fire station.

Ammo Jon · May 2, 2019

My dad used to examine pension plans when he worked for the IRS. Most of them are a deck of cards.

Name Taken · May 2, 2019

I do not understand why anyone thought pension plans would be sustainable. Let alone ones where you can retire under the age of 50 and draw on it for potentially longer than you put into it. And while I get interest gains is something to consider the one plan I'm familiar with the retiree will have every dollar they ever put into the plan back in less than 7 years of retirement.

Even if it could in fact function, which I don't think they can, the Government can't help but to either pull money out for things that aren't pension related or refuse to fund it certain years making for huge gaps. They just can't help themselves.

The other part of the conversation is say the State didn't offer some of these retirement packages. How expensive does the salary need to be to attract folks? For instance many Police Departments can't meet their numbers. If the lure of a good retirement is taken away what would the base salary have to be to get the proper amount of officers? I would think the starting salary would have to be adjusted 20-30k a year. I'm sure the teachers wouldn't be that far off.

danb · May 2, 2019

Blacksmith101 said:
Employees of Maryland May Need a Bail Out in the Future.

Anyone expecting a pension from Maryland should be treating the tax payers very nicely because Maryland has been doing it's thing with the pension numbers. I know I will be thinking about the MSP LD when they come asking for more tax money.

Maryland’s State Pension May Be Only 35 Percent Funded
https://www.mdpolicy.org/policyblog/detail/marylands-state-pension-may-be-only-35-percent-funded

ALEC’s estimates reveal more pessimistic figures because they are calculated using “risk-free” discount rates.

This is an inappropriate assumption (I do this for a living) and the 35% funded number is a worst case scenario. Nobody does this including Moodys, except policy think tanks trying to scare people. The truth is scary enough as it is, no need to damage ones credibility by talking about the world ending.

For example, in five out of five fiscal years since 2013, the 10-year average rate of return for the MSRPS has failed to meet the 7.5 percent discount rate. In fact, the MSRPS’s investment portfolio returned just 4.2 percent over the 10 years ending in June 30, 2017—over 3 percent lower than the 7.5 discount rate.

Given this, it is safe to assume that Maryland’s official estimate of approximately 70 percent funded status is inaccurate and that the $20 billion pension liability figure is undervalued.

This part is true however the real underfunding is somewhere between MD's estimate (70%) and ALECs 35% number. Probably 50%-60%.

What really should piss you off is that the pension is underperfoming the market because they are actively managed. Lobbyists just cannot resist the fees generated by active management.

But I am personally not sticking around to get saddled with the taxes. By the time the bill comes due, my tax dollars are outta here. :outta her

btw you should be thankful (maybe) for the US. If MD were its own country, we would be printing a shit ton of money for these pensions, and inflation would be 50% like it is in Argentina. And you would not be free to seek asylum in FL or TX.

And before you get all hot and bothered about taxes, so who is signing up to vote to cut teacher pensions? Because thats what we are talking about here: cutting pensions, extending retirement age, etc. For teachers, mostly.

danb · May 2, 2019

Norton said:
That will be one way to completely finish off the school systems, start telling teachers that their pensions that they largely fund out of their own pockets as a condition of employment aren't going to be there.

Watch a few thousand teachers decide all at once that they simply are done.

It is going to suck to make the transition to 401ks, they will probably will have transition slowly over time. But it is going to happen, and every year that goes by the problem gets worse and the transition gets worse. No one will pay the taxes required to fund these pensions. People who can move (those with means and who pay the taxes, will.

Unfortunately the crisis will happen: 1- when we get to the point were actual cashflow is insufficient to meet obligations ; 2- the next recession which will kill the investment balance (last recession, the balance declined 20% IIRC) which will force additional contributions/taxes or a cut in benefits, or both.

Blacksmith101 · May 2, 2019

Since you do this for a living isn't there a Federal Department empowered to cut pensions that are under funded?

danb · May 2, 2019

Blacksmith101 said:
Since you do this for a living isn't there a Federal Department empowered to cut pensions that are under funded?

Not quite, and the Feds are not bailing out MD either. If they did they would also have to bail out IL, NJ, and many other states and municipalities. Not gonna happen.

Inigoes · May 2, 2019

Blacksmith101 said:
Since you do this for a living isn't there a Federal Department empowered to cut pensions that are under funded?

You are looking at it wrong.

The Feds have the Pension Benefit Guarantee Corporation (PBGC).

How it works:

The PBGC takes over the pension fund, and looks at how much money is in there.

The PBGC then notifies all of the pensioners of what kind of hair cut they will get based on the available funding, length of time contributing to the fund, and things like that.

danb · May 2, 2019

in case people are interested there are a number of interesting "test" cases working their way through courts to see if States even have the power to cut benefits:

https://www.sfchronicle.com/news/article/California-high-court-rules-against-public-13662056.php

Its not completely (legally) obvious whether states can cut benefits unilaterally: https://www.washingtonpost.com/news...u-get-there-from-here/?utm_term=.ae54e750e7f1 Its pretty complicated. state employee pensions may or may not be contracts, depending on state law, and contracts can generally only be abrogated or impaired in bankruptcy (but there are exceptions).

There will (eventually) be a Supreme Court case or two to work out any circuit splits (if any) in federal law. The fact that CA Supreme Court allowed some rollbacks of benefits though is pretty huge and also shows that the stakes are pretty high.

erwos · May 2, 2019

Inigoes said:
You are looking at it wrong.

The Feds have the Pension Benefit Guarantee Corporation (PBGC).

How it works:

The PBGC takes over the pension fund, and looks at how much money is in there.

The PBGC then notifies all of the pensioners of what kind of hair cut they will get based on the available funding, length of time contributing to the fund, and things like that.

Correct. IIRC, there's a maximum amount that they pay out, and if you're owed more than that, you're SOL.

The reality is that the courts are going to have to allow haircuts for state pensions, or a bunch of states are going to essentially implode Detroit-style.

dist1646 · May 2, 2019

Sooner or later, they run out of other people's money to make up the difference. Simply can not raise taxes on those who are already overtaxed to the point that they can not afford retirement. Sad thing is that the democrats will simply make more unsustainable promises and they will continue to put the dem's back in power.

Norton · May 2, 2019

danb said:
It is going to suck to make the transition to 401ks, they will probably will have transition slowly over time. But it is going to happen, and every year that goes by the problem gets worse and the transition gets worse. No one will pay the taxes required to fund these pensions. People who can move (those with means and who pay the taxes, will.

Unfortunately the crisis will happen: 1- when we get to the point were actual cashflow is insufficient to meet obligations ; 2- the next recession which will kill the investment balance (last recession, the balance declined 20% IIRC) which will force additional contributions/taxes or a cut in benefits, or both.

I fund my own pension as well as max out my 403b with no matching funds from my employer. Pension plan can write me a check for the $77k that I've paid into it and we'll call it a day.

danb · May 2, 2019

Norton said:
I fund my own pension as well as max out my 403b with no matching funds from my employer. Pension plan can write me a check for the $77k that I've paid into it and we'll call it a day.

If you have put 77k into it, over time, they are likely to cash you into a 401k or similar plan for more than that. If you let it go for 77k you are giving them a great deal.

Mr H · May 2, 2019

Wife just started drawing her pension last summer, for 30 years in PeeGee schools.

Here's hoping this is just (or mainly) a "Look at what was reported under a R governor! Elephant BAD!"

Employees of Maryland May Need a Bail Out in the Future

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