Creates Sustainable Retirement System, Flexibility in Savings
Governor Larry Hogan recently 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.