Governor Larry Hogan Announces State Retirement Choice Act for the 21st Century Workforce

January 31, 2017

Creates Sustainable Retirement System, Flexibility in Savings

Governor Larry Hogan today announced the State Retirement Choice Act for the 21st Century Workforce, legislation that will restructure and protect Maryland’s current underperforming employee pension system. The proposed legislation will allow the state to begin paying down the unfunded liability in the current pension system while creating a sustainable retirement system that will serve state employees into the future.

The State Retirement Choice Act for the 21st Century Workforce creates an optional defined contribution retirement savings plan for state employees. Under the new plan, both employees and the state would each contribute 5 percent to the employee’s individual retirement account. Like other states, new state employees will have the option of choosing between the existing defined benefit pension plan or the new defined contribution plan. Due to IRS regulations, the new plan is not available to current state employees, and teachers are not included in the legislation.

“Protecting the integrity of our pension system and keeping the promises made to our hardworking state employees will always be a priority of this administration,” said Governor Hogan. “This legislation will safeguard pension contributions and create a long-term and stable structure that will meet the needs of retired, current, and future state employees.”

In recognition of the needs of 21st century workers, under the new plan, state contributions will vest after three years of employment, rather than the ten years necessary under the state’s existing pension plan, giving employees the flexibility to take their retirement savings with them to their next job.

Demonstrating the administration’s continued commitment to our state’s pension system, Governor Hogan funded the state’s Annual Required Contribution pension payment for two consecutive years, the first time this has been done since 2001. Additionally, the administration’s last two budgets have also included an additional payment of $75 million to further bolster the system.

Maryland’s current pension plan has chronically under-performed, earning 2.86% in 2015 and 1.16% in 2016, far less than the investment target of 7.55%. The state’s current pension system has an estimated $20 billion unfunded liability, meaning the system lacks the assets necessary to pay approximately 30 percent of the benefits it owes to current and future retirees.



 

3 Responses to Governor Larry Hogan Announces State Retirement Choice Act for the 21st Century Workforce

  1. Anonymous on January 31, 2017 at 9:34 am

    Finally, someone with some fiscal sense.

  2. Anonymous on January 31, 2017 at 10:49 am

    Time to fire whoever is in charge of investing the money. My 401K earned 11% last year and 12% already this year. I know the market will adjust and that will go down but my money is just sitting in certain investments. Anyone with any knowledge of investing could play the market and make a much better return then they are getting. Something isn’t right, either the money is being mismanaged or someone is skimming off the top and claiming minimal gains.

  3. 13eeker on February 1, 2017 at 7:17 am

    “The state’s current pension system has an estimated $20 billion unfunded liability, …”
    Let’s be real.
    The unfunded liability is due to the state diverting promised pension contributions to other more politically attractive budget items. The system was 106% funded until Glendening shifted some things, then Ehrlich, and O’Malley straight up lied saying the state will kick in $300M, but then reneging and cutting the contribution by $100M.
    It’s okay though, while politically popular, defined contribution plans don’t work as well as defined benefit. Thus there will eventually be a generation of retirees back in state offices on the other side of the desk, seeking additional financial support in the form of welfare.