Pension revisited

An essay I wrote for the Maryland Reporter:

About a year ago, I wrote an essay for MarylandReporter.com  suggesting the state legislature look to local governments for ideas on how to successfully manage pension systems.  Naturally, the opposite has happened.

Del. Mary Ann Lisanti of Harford County is pushing HB 971, legislation that would require local government pensions to provide a potentially budget-breaking disability benefit for some public safety employees.

Del. Lisanti’s bill is a response to a line-of-duty injury suffered by a police officer in one of Harford County’s municipalities. There’s no question that it is a situation that tugs at heart strings. It’s also the perfect example of the old legal adage: Hard cases make bad laws.

Caroline County—the state’s second poorest—has its own pension system.  After years of hard work and sacrifice, our system is stronger that the state’s. Del. Lisanti’s well-intentioned effort to benefit a single individual will have a profound effect on thousands of local government employees including ours.

Our actuaries are crunching numbers now, but there’s no doubt the new benefit will be expensive, not only to provide but to administer.  The smaller the pension system, the greater the impact.  The reasons are much same as why small counties cannot afford to self-insure for worker’s compensation.  With a small pool of employees, even one or two unanticipated claims can dramatically increase costs.  The inherent volatility and disproportionately high administrative costs makes self-insuring impractical.

If HB 971 is passed, Caroline County faces the prospect of having to increase what employees pay into the pension, cutting spending to pay a larger employer share, and/or restructuring pension benefits for future retirees.  Since about 75% of our annual budget is dictated by state mandates, we have few options—none appealing.

The bill also backdates the benefit to 2015, presumably to benefit Delegate Lisanti’s constituent.  This is problematic not only for pension funds, but for bond rating agencies.  How can those agencies evaluate our creditworthiness if financial mandates can be imposed ex post facto?

We understand the issue.  We already provide long-term disability insurance at no cost to our employees.  We are working towards other solutions we can afford, and not just for public safety employees.  After all, other workers can be left disabled due to a work-related injury. They deserve no less consideration.

Whatever we do must be financially responsible.  It’s laudable that Del. Lisanti wants local government pensions to match the lavish benefits promised by Maryland’s Law Enforcement Officers’ Pension System (LEOPS).  The unflattering reality, however, is that state has woefully underfunded LEOPS despite an employer share of nearly 40 cents for every dollar in wages.  By comparison, the employer share for Caroline’s fiscally sustainable pension system is less than 12 cents.

It is tempting but would be intemperate to suggest the Maryland legislature fix its own pension systems before dictating how we should manage ours.  My request is more measured.  Give local pension officials time to do the actuarial work necessary to determine the impact.  It is unconscionable to ignore the plight of workers disabled in the line of duty, but no less so to blindly force local governments to make pension promises we cannot afford to keep.