by Keith Dorsey
Director of Budget and Finance
Recent coverage of the federal district court’s decision regarding pension contributions by Baltimore County employees does not accurately reflect how puzzling the court’s decision actually is and how harmful this decision could be for hard-working County employees. The EEOC’s press release should have been entitled, “No Good Deed Goes Unpunished, Again.” To put it simply, Baltimore County’s retirement contribution schedule is not discriminatory, was negotiated by County labor groups, and is supported by years of sound actuarial studies. For a court to attempt to force Baltimore County to raise the pension contributions for nearly 8,000 County employees retroactively is simply wrong, and the County will stand with its employees and fight this case until there is no one left to fight.
The EEOC misstates and distorts the County’s retirement program, and allegations of discrimination are based on a fundamental misunderstanding of U.S. Supreme Court precedent and standard actuarial practice. The County’s member contribution rates for employees hired before July 1, 2007 were originally established in 1945 and then changed in 1977 to the benefit of older workers. The contribution rates are based on the long-held standard of the “time/value of money.” Perhaps the easiest way to think of what the time/value of money means in real terms is to think of a young family trying to save $100,000 for a new baby’s college fund. If one family starts saving for that fund on the day the baby is born while the family next door doesn’t start to save until the baby enters the ninth grade, obviously the yearly contribution necessary for the family that waited until 9th grade is drastically more than the family that started to save when the child was born. The retirement calculation is based on that very same principle, and it really is that simple.
Baltimore County Provided Early Retirement Benefit in 1973
Who in their wildest imagination could foresee that when the County provided a generous early retirement option for its employees in 1973 based upon years of service and not a set retirement age that the benefit would be characterized 39 years later as age discrimination?
Here are some other facts that have not been widely noted at this point in time: In its opinion, the court noted that “in 1973 the County, at no additional cost to employees, added a generous early retirement option based on years of service.” Such a benefit is explicitly authorized by the Federal Age Discrimination and Employment Act. It is a called a “safe harbor” for a fully subsidized early-retirement benefit paid for completely by the County. That is worth repeating – that early retirement option was paid for entirely by the Baltimore County Government and did not cost County employees anything. One has to ask the question, why would anyone who is being provided with such a generous retirement benefit complain about it?
In a retirement system with more than 10,000 employees and 6,500 retirees, two correctional officers originally filed a complaint with the EEOC in 1999 and 2000. After initial processing, the EEOC did nothing for nearly six years. They then contacted the County and advised that they were going to find the County in violation. After further discussion, the EEOC filed suit in 2007. The County won that lawsuit through a grant of summary judgment by the same federal court that just reversed itself on the very same issue. The EEOC appealed the original decision to the United States Court of Appeals for the Fourth Circuit. A three judge panel in the Fourth Circuit posed a hypothetical question concerning the effect of the correctional officers’ twenty-year early service retirement benefit based upon the court’s determination that the employee contribution rates were based on the time/value of money, an actuarial calculation that remains unquestioned. The Fourth Circuit then remanded the case back to the lower court for a determination of the “financial considerations involved with the early retirement option.”
Baltimore County’s actuary, David Driscoll of Buck Consultants, clarified that the County provided the early retirement option in question at no cost to the employees. In other words, the County paid for the entire benefit. This meant that qualified workers could receive a full retirement after a set number of years, rather than waiting until they reach normal service retirement age. The EEOC did not produce an actuarial expert to refute even a single point that was presented by the County’s actuary. Even more disturbing is the fact that the courts are allowed to second guess sound financial advice given to the County by trained actuaries. County employees have every right to ask how on earth can this be happening.
In its opinion, the federal district court notes that contribution rates being attacked by the EEOC were calculated in 1977. It further notes, that, “As a result of the uniform reduction, older workers actually bore slightly less of the relative cost of their retirement benefits, while younger workers bore slightly more.” How is this age discrimination?
Decision Unfair to Current Employees
From a strictly legal perspective, the County believes that the court misinterpreted the law, and from a practical perspective, its decision is incorrect. The Supreme Court has made it clear that the EEOC bears the burden of establishing that age “actually motivated the employer’s decision.” The federal district court noted in his decision that the EEOC freely admits that there is no evidence to suggest that the County subjectively intended, at any point in the history of the Employees’ Retirement System (ERS), to treat older workers less favorably than younger workers. According to a third-party actuarial firm, the County’s ERS contribution rates were based purely on financial considerations.
Overreach of Judicial and Federal Authority
I am often asked why the County is fighting this case with such determination. That is easy. The court or federal agency should not be allowed to order County government to increase pension contributions for nearly 8,000 workers arbitrarily. If the court’s ruling were to be upheld (which we do not anticipate), County employees would have to repay millions of dollars in pension funding. Their paychecks would be decreased as a result of this decision. That is simply wrong, and such action oversteps judicial and federal authority. The County will continue to resist the growing drumbeat to eliminate its defined-benefit pension plan in favor of a defined-contribution 401 K program. We will stand with our employees to protect a pension system that is fair for employees and sustainable for taxpayers. They deserve no less, and we will take this case all the way to the Supreme Court if that is what it takes to protect Baltimore County employees.