by Gabriel J. Michael
Maryland Public Policy Institute
January 29, 2014
Maryland, while avoiding the overwhelming challenges of states like Illinois and Connecticut related to the costs of public employee pensions and retiree health care, faces rapidly increasing annual costs associated with these benefits, coupled with unpredictable (but predictably less than expected) investment returns. Currently the state’s pension system faces a long-term shortfall estimated at over $19 billion. The long-term shortfall for state retiree healthcare is estimated to be $9.4 billion. With a few exceptions, the situation in many Maryland counties is just as dismal. Defined contribution plans can offer a different kind of security for employees. Funded by employee contributions and employer matches, they need not suffer from chronic underfunding due to political and budgetary processes. Properly designed, they can be easily transferred when employees switch jobs and thereby avoid penalizing employees who do not work long enough to vest.