As Maryland lawmakers debate how much to spend on pensions for teachers and state employee, they also are reviewing legislation to create a state-run retirement plan for private employees whose employers do not offer one.
Maryland and other states are on the verge of a “retirement crisis,” Del. Tom Hucker (D-Dist. 20) of Silver Spring said during a House Economic Matters Committee hearing last week. “It’s only going to get worse as more employers drop supplemental retirement plans and as an increasing number of retirees strain overburdened social services.”
Establishing a state retirement program for private workers will allow Maryland to “get ahead of the curve,” said Hucker, who filed the bill.
About 50 percent of Maryland workers don’t have a retirement plan at work, and accounting firm Ernst & Young recently estimated that 59 percent of new middle class retirees will outlive retirement savings, he said.
Many employers have phased out traditional defined-benefit pension plans — which pay retirees a monthly benefit based on factors such as length of employment — in favor of defined contribution ones like 401(k) plans.
The percentage of employees with a defined-benefit plan dropped to 32 percent in 2010 from 88 percent in 1983, according to the Center for Retirement Research at Boston College.
The Maryland Chamber of Commerce is among the opponents of the bill. The legislation would impose administrative burdens on employers that would be required to set up payroll reductions, enroll employees and collect forms from workers, said Deriece Pate Bennett, vice president of government affairs for the chamber.
“The administrative and financial burdens that this mandate will put on Maryland businesses will hurt our competitive advantage,” she said.
There are private options for savings vehicles for employees whose employers don’t offer a retirement plan, Bennett said.
There will not be any fiduciary responsibility to the state, Hucker said. While a state legislative analysis said there were no startup costs to the state, analysts cited some enforcement costs, including about $350,000 in fiscal 2017.
On Friday, the Senate Budget Committee voted to only spend $100 million above the required state payment for Maryland employees’ retirement system for fiscal years 2014 and 2015, to free up funds for the general budget. In 2011, the state agreed to make $300 million in annual payments higher than what was required in return for increased salary deductions by employees for their pensions.
The payments would be increased after 2015 until reaching $300 million in fiscal 2019, under the amendment approved by the Senate committee. The full Senate is slated to consider the matter this week.
Maryland’s pension fund was valued at $40.3 billion as of June 2013, up about $3 billion from a year earlier. The system provides benefits to more than 132,000 retirees, including teachers, law enforcement personnel, legislators, judges and government workers.