Baltimore County Pension Change Will Cost $15 Million
Expert: "To be in denial, and say you’re ahead of the curve and that you’re in good shape and will stay in good shape is just ignoring reality."
UPDATE (9:10 a.m.)—The board that governs the pension plan for Baltimore County employees is lowering its official expectations on annual investments made by the retirement system.
The eight-member board Tuesday unanimously approved a decrease in the assumed annual investment earnings rate by more than six-tenths of a percent to 7.25 percent.
The rate is used to determine the county's level of funding for the nearly $2 billion pension system each year. The change means the county will have to come up with an additional $15 million in pension contributions beginning next July 1.
The board’s action Tuesday is the first time the rate has been changed since it was set in 1993, according to a report by the Baltimore County Auditor’s office earlier this year.
"It is obvious to me that this change has no negative impact on retirees," Baltimore County Police Major Joseph Zerhusen said in a statement. "This financial decision simply ensures that we set the expected performance of the pension system to better reflect a more realistic figure so that the system is fiscally sound for current and future retirees."
Zerhusen is chairman of the Baltimore County Employee Retirement System.
The county’s assumed annual investment earnings rate is lower than the 8 percent assumed by Baltimore City, and Anne Arundel, Howard Counties. The state assumes a rate of 7.75 percent.
Carroll County assumes a 7 percent rate.
Over the last 10 years, the county has seen a return of 4.259 percent—well below what the county expected. The county’s annual required contributions have “increased more than six-fold over the 12-year period from fiscal year 2002 to fiscal year 2013,” according to the Baltimore County Auditor.
In 2002, the county contributed $10 million to the retirement system compared to the nearly $73 million it will pay into the system this year.
Some financial experts said the county’s new rate may still be too high and the current pension system unsustainable.
Morris Segall, an adviser and senior Economist for Baltimore-based Sage Policy Group, said the unfunded pension liabilities of state and local governments like Baltimore County are not getting smaller. The stock market has shown a negative return on investments since 1999 and bonds and other investments continue to struggle as government work forces mature and retire.
The county auditor’s office reported earlier this year that the retirement fund is only 77 percent funded—down from 80 percent two years ago. In 2000, the retirement system was funded at nearly 112 percent.
The decreased funding comes at the same time that the number ratio of active to retired workers has dropped from more than 2 to 1 in 1993 to 1.4 to 1 as of June 2011.
“The money has to come from some where,” Segall said. “The county can’t pay for it all so there will likely have to be cuts to benefits or the county will have to demand larger contributions from employees.”
Segall said employee jobs could be on the line. So far, Baltimore County has avoided layoffs and furloughs that have happened in other county governments in Maryland and other states.
County officials routinely point out that they have avoided such draconian cuts at the same time they’ve made change to make the pension system more stable.
Segall said the moves merely delay the inevitable.
“To be in denial, and say you’re ahead of the curve and that you’re in good shape and will stay in good shape is just ignoring reality,” Segall said.
Segall said local governments are “running out of sofa cushions” to find ways to pay for defined benefit pension plans.
“It can’t go on to infinity,” Segall said, adding that the county will likely have to reduce its expectations again to below 7 percent. Such a move would require the county to find even more money to pay for it’s annual pension obligations.
Ellen Kobler, a spokeswoman for the county, said the county believes that the fund will recover over the long-term as the economy improves.
“We’re very confident with this analysis,” Kobler said. “You have to keep in mind that with government pensions you’re looking at the long-term outlook of 20 to 30 years and not the short-term outlook.”
It is not immediately clear how the county will absorb the additional pension costs.
“It will be figured into our future budget planning,” Kobler said.
In a statement, County Executive Kevin Kamenetz said the change was an important step in ongoing efforts to manage growing retirement costs.
"But we still have work to do," Kamenetz said in the email statement. "We have to focus on the cost of employee health care, and we need to do it now. Our employees and taxpayers know that we must have a pension and health care benefit structure that will be there when employees expect it, yet is affordable for present and future taxpayers. Anything less is unacceptable."
The change is not expected to have an effect on how much county employees contribute to the plan.
The change had been expected for some time.
County officials and members of the County Council earlier this year said the assumed earning rates on pension investments was too high.
The board did not lower the rate that determines the county's ability to give cost of living increases to retirees. Returns on pension system investments will have to exceed 7.85 percent before it can consider funding such an increase.
Concerned Citizen
10:34 pm on Tuesday, July 10, 2012
Can get close to $2 million by eliminating the Auditor's Office.
Calm down
1:32 am on Wednesday, July 11, 2012
In the actuarial world,, This is an incredibly fiscally prudent move. Kudos to Kamenetz for having the wisdom to make these changes.
Rick Solimini
7:28 am on Wednesday, July 11, 2012
EVen more closer by giving them the same pension as an ordinary joe or josephine gets. i wished i could get their amount.My level isn't middle class its on poverty
FIFA_archived
7:34 am on Wednesday, July 11, 2012
Can I invest my money there, at 7.25%, that's like wow. One caveat, they have to promise not to lose any of it.
fred
8:49 am on Wednesday, July 11, 2012
you can probable get that return also only you will need to invest a billion dollars.
FIFA_archived
10:38 am on Wednesday, July 11, 2012
fred, let's you and I pool it together. I'll give you the first $1,000 and you make up the rest!
fred
2:22 pm on Wednesday, July 11, 2012
i' m all in.
John
9:54 am on Wednesday, July 11, 2012
I have a few questions. What politicians agreed to put the county into such a bad pension deal years ago? Names please. Why would they do such a thing to the tax payers? Union Votes. How do you square taking more money from taxpayers to pay for this mess that don't have pensions as good as the county employees or better yet, don't receive pensions from their company at all?
FIFA_archived
10:51 am on Wednesday, July 11, 2012
Of course the silliness is the presumed 7.25% return. If the average return for the last 10 years is 4.259 % we still are overstating the return by almost 3%. Crazy assumptions lead to crazy results. Psst, kick the can down the road in case you weren't looking.
JDStuts
11:25 am on Wednesday, July 11, 2012
I've been in this game a while now and Baltimore County's expected rate of return is, like most municipalities, way too high.
Most Americans haven't fully grasp the pension bomb but you'll see more and more Scrantons and Stocktons in the future probably right here in Maryland.
Part of the problem is the quality of the investment. Pension funds are very conservative so they miss out on the upstarts and unproven investment vehicles out there. More than likely you going to see promised benefits withdrawn over time.
How in 2012 the county is still offering anything other than a 401k program is beyond reason.
John OHare
11:29 am on Wednesday, July 11, 2012
Using 7.25% as a basis for return on investment is a joke. The last time that was possible Jimmie Carter was in office. If the County or State used a more realistic number of 4.0% to 6.0% then they would have to declare bankruptsey or raise taxes through the roof.
The root problem with the public pension an benefit system is that unions are constantly trying to increase benefits for their members using their large voting power to get what they want. The politicians easily give in to their demands with the promise of receiving their union member votes. It is too easy for the politicans to give in to the unions demands since the money to pay for their agreement will not have to be paid for until 20 or 30 years. The current unfunded pension debt is the result of many years of making promises without regard for where the money will come from to pay for them. This is a prime example of what happens when you have public unions controlling the politicians. They win and you pay.
fred
2:46 pm on Wednesday, July 11, 2012
you know if the county didn't turn a 21 million investment( tax dollars) (Mainsail) into 0$ and then sell it to the pension system they would be ok.
FIFA_archived
11:46 am on Wednesday, July 11, 2012
The poor peanut farmer gets kicked around like the proverbial can. Highest rate of return on 6 month Treasury bills was 15.03% for Jimmy in 3/1980, Ronnie 15.52% in 8/1981, 8.85% for HW in 3/1989, Billy had 6.21% in 12/1994, GWB had 5.06% in 7/2006 and BO had 0.45% in 2/2009.
FIFA_archived
11:47 am on Wednesday, July 11, 2012
http://www.federalreserve.gov/releases/h15/data.htm
Just in case you want to see lots of data.
John OHare
11:59 am on Wednesday, July 11, 2012
You seem to have a lot of information. If I understand your information correctly, the last time interest rates were at or above 7.25% was in 1989. I stand corrected.
FIFA_archived
12:14 pm on Wednesday, July 11, 2012
Early 1990 it was as high as 7.85% - Still under HW's watch thus not in the data above.
Remember, this was 6 month T-bills, a very conservative investment.
John
11:55 am on Wednesday, July 11, 2012
What's the one common denominator in these problems with public and private sector. Auto, Steel, Local, State, Fed Govenment. It looks like the unions.
fred
2:35 pm on Wednesday, July 11, 2012
hey wait a minute there, without the unions the football and baseball players couldn,t made 10 to 20 million a year.
DS
12:08 pm on Wednesday, July 11, 2012
I am good with paying the extra taxes to cover pensions. I beleive we should pay these folks those pensions for life - they derserve it. Why? Because they were smart enough to avoid the private sector unlike me. They are the smart ones - we are the dumb ones.
JDStuts
1:11 pm on Wednesday, July 11, 2012
Its not that simple.
Any tax increase, which would have to be significant to cover the actual forthcoming pension bubble, has a ripple effect. By reallocating those funds from individuals and business you weaken their purchasing power. That effects local businesses whose sales consequently drop off. Depressed sales result in lower tax receipts for the county further straining their coffers. This leads to certain revenue saving measures like cutting education funding which results in weaker schools. Schools are a large factor in real estate. Bad schools make neighborhoods less desirable and prices fall. The drop in real estate assessments further hurts the county's coffers by reducing the amount of taxes they collect.
This is why its a ticking time bomb of epic proportions.
John
12:15 pm on Wednesday, July 11, 2012
DS. That's so true, but when I was seeking a job out of college everyone knew that government workers received great benefits but less pay. Somehow, that changed drastically over the last 30 years. They kept their great benefits and the pay scales jumped past the private sector! I think I'm just jealous.
DS
12:23 pm on Wednesday, July 11, 2012
John - right? I mean I too had envisioned of working in the private sector and making a killing but it never happened.....oh well.
Concerned Citizen
3:00 pm on Wednesday, July 11, 2012
Psst... Seriously $2 million if Auditor Office is eliminated. Absolutely no loss in county services and could save the pension fund untold millions
Jim Arrington
7:30 pm on Wednesday, July 11, 2012
This county has forgotten its retired employees, no COLA for over 2 years now. As a retired person on medicare now the cost for my spouse and myself had doubled, the benefits stink. Mr. KK is looking out for himself and being a lawyer he knows how to deceive and play on weak people's feelings.
RARE MARYLAND INDEPENDENT
9:08 pm on Wednesday, July 11, 2012
Jim - do you know what is going on right now in the private sector? People are happy to have a JOB, working more for less, paying significantly more for health care and happy just to be working. Are you are aware of the recent bankruptcy filings of municipalities? Read a bit about Scranton! Be happy people in the private sector can still plow enough dollars for you to have some benefits.
Need to get with the program.
Tree
7:11 am on Thursday, July 12, 2012
Just so up you know, they haven't forgotten about you. Even the ones still working haven't gotten a raise in years..
carroll reid jr.
11:42 pm on Wednesday, July 11, 2012
just wait until the county starts picking up bteachers pensions thao malley dropped on them this year. thern you will see what underfunded really is. just look at other states that there cities are filling for bankruspty.
Jim Arrington
3:27 pm on Thursday, July 12, 2012
Hey Rare I am so aware what is going on in this screwed up country it sickening, Yes I am aware of the folks being paid mininium wages in Scranton. For those people I would say kiss my butt I am not laying my life out there for $7.25. I was a cop for 22 years and deserve every penny I can get out of this county, we had no comp time, overtime, worked 30-40 hours on a case without nothing so I am making up for it now. I talking for cops not other baltimore county employees as they have their own reps to yell out for them, mark my words rare see who gets screwed here.
Jimmy
8:31 pm on Thursday, July 19, 2012
You all are bashing unions. They are not the problem. The POLITICIANS are the problem. In the last 25 years, the county has offered retirement incentives that the pension fund couldn't afford. ALL the county politicians get a 100% pension after working as little as 2 terms. The Police have to work over 40 years to get that benefit, the fire department longer than that. There are at least 4 people working in the county for over $150k a year that are "deferring" their pension to be collected in full when they retire "again". If these honest politicians give up their great pension and stop borrowing from the pension fund, there probably wouldn't be any problem. Also, don't forget - if the employee lives in the county, he is not only paying some of his salary into the pension fund, but the taxes he pays also funds government spending.
Jimmy
8:41 pm on Thursday, July 19, 2012
I'm not sure about this but I don't think the politicians pay into the pension fund, just collect out of it. Not bad for a part time job. Now the fund has the added unfunded liability that O'Mally gave the counties (that Mr K accepted with open arms)with the new teacher's pensions. By the way, the police and firemen pay almost 10% a pay towards their pension. They also didn't have the option to pay into social secuity so that meager pension is not there. How much money do people pay into their 401k every week?