By Peta Richkus.
Older retirees from State service remain in a hellacious limbo about their futures. Thanks only to a federal court injunction, and the handful of employees and their attorney who filed for it (Thank you, Ken Fitch, Deborah Heim, Mary Frye, and Deborah Holloway Hill, Esq.), Medicare-eligible State retirees continue to receive their prescription drug benefit. But for how long?
Unfortunately, many legislators, now meeting in Annapolis for this year’s 90-day legislative session, seem to have swallowed the mantra from the administration and legislative leadership that “nothing can be done until the court case is concluded.” Thankfully, a few delegates have introduced a bill that would do the right thing, if passed.
In fact, the ongoing court case (Fitch, et all v. State of Maryland, et al.) does not preclude the General Assembly from remedying the State’s taking of the personal property of its Medicare-eligible retirees. The court case only stops the State from ending the prescription drug benefit – or from substituting the provisions of the law passed last year as Senate Bill 946.
The September 2018 injunction was imposed by the United States District Court for the District of Maryland because Senior U.S. District Court Judge Peter J. Messitte found:
that it was in the public interest, when in this kind of situation, benefits such as prescription drug benefits can be terminated even after employees have met all the creditable service requirements to participate in the Health Program; and that there was sufficient showing by the Plaintiffs that a contract existed (PJM-18-2817, Document 30, Transcript of October 10, 2018 Proceedings, 12; 5-9.),
that the Plaintiffs may prevail on the merits regarding a breach of contract claim based not only on the language of the statute but also by common law principles of contract. (4 PJM-18-2817, Document 30, Transcript of October 10, 2018 Proceedings. Pg. 23:21-25; Pg. 24; 1-6.)
The State’s retirees continue to argue that, in compliance with Government Accounting Standards Board (GASB) principles, and in fairness to 45,000+ state retirees, the State should move to keep retirees in their current prescription drug program. That’s what they plan to say in testimony before the Committee next week.
House Bill 1230, which would reinstate the prescription drug benefit for Medicare-eligible State retirees hired before July 1, 2011, is scheduled to be heard in the House Appropriations Committee on Tuesday, March 10th.
Retirees continue to try to educate their state representatives on the facts versus the “spin” perpetuated by succeeding governors and legislators since 2010 that has been used to rationalize the theft of their benefits. There are a number of new representatives, and numerous new committee assignments, so an on-going effort is needed. This is in addition to correcting what retirees believe are misleading or false ‘sound-bites’ repeated over and over by the administration.
A major red-herring has been the threatened loss of the State’s valuable AAA bond rating. The issues of retirees’ benefits, the State’s unfunded Other Postemployment Benefit (OPEB) liability, and the bond rating should not be conflated. (1) The bond rating agencies have never downgraded a state’s bonds based solely on an unfunded OPEB liability; and (2) States with greater OPEB liabilities than Maryland have continued to maintain their triple-A bond rating. Examples include Georgia, with an $18 billion unfunded liability; North Carolina, with a $33 billion unfunded liability; and Texas, with an $88 billion unfunded liability. In July 2018, Maryland’s net OPEB liability was $10.7 billion.
(As of July 1, 2018, the State’s net OPEB liability was $10.7 billion; the total OPEB liability, $11.1 billion. DLS Fiscal and Policy Note on the First Reader of SB946, http://mgaleg.maryland.gov/2019RS/fnotes/bil_0006/sb0946.pdf, retrieved 3/17/2019).
The main cause of the worrisome unfunded OPEB liability is the State’s own consistent failure to make the necessary contributions to its OPEB Trust fund.
In 2004, under then-new GASB standards, the State was required to set up an OPEB trust fund, but it has never contributed the annual required contribution specified under GASB. Indeed, the few contributions that were made were woefully insufficient. Maryland’s unfunded OPEB liability reflects the significant deficiency in the amount contributed to the Trust. If the State had made the required contributions, the unfunded liability would be much less, in the tolerable range, and the funded liability level – now only 3 % – would be much greater, more sustainable, and more in line with bond rating agencies’ targets.
According to an analysis by the Department of Legislative Services (DLS) of the Department of Budget and Management:
The State has not met the commission’s recommendation regarding payments to prefund the OPEB liability. The State provided payments from fiscal 2007 to 2009 but eliminated payments in fiscal 2010 for budgetary reasons. The State has not provided OPEB liability payments since fiscal 2010. In fiscal 2018, the State’s net OPEB liability was $10.6 billion, representing a funded ratio of 3% ($329.3 million in assets). If, today, the State started prefunding the OPEB liability on an annual basis, then the liability would decrease to $6.5 billion. However, this would require the State to pay approximately $127 million in addition to annual benefit costs. (Emphasis added.)
It’s worth knowing that $127 million would represent only about 0.27% of the State budget (based on FY2020).
The inescapable conclusion is that it has been the lack of State funding of the OPEB Trust that has led to the large unfunded liability. Then the State used the unfunded liability that it created as the rationale for removing retirees from their prescription drug plan, a benefit they had been promised and to which they have contributed for 20, 30, 40 years and more.
Retirees saved and built their retirement plans on the basis of what they were told by the State. The State then moved to rob them of what is basically a type of deferred compensation – earned but not yet claimed. Of course retirees remain more than concerned: they are outraged. And afraid.
The original GASB guidance included significant relevant language that should be – and should have been – considered by the State:
In a cost-sharing pension or OPEB, the participating employers pool their benefit obligations and assets. In addition to providing administrative services, the plan assumes from the individual employers the responsibility to fund promised benefits. In exchange, the individual cost-sharing employees incur liabilities to the plan for the contractually required contributions assessed to them by the plan as their share of the aggregate funding requirements for specified periods. (Emphasis added.) (FY10A02, Personnel budget (p. 16).)
Of particular note: the oft-cited GASB made its position on funding OPEB liabilities exceedingly clear:
… the GASB believes that a government has an obligation to pay OPEB based on the level of retirement benefits promised to an employee in exchange for his or her services.
This is what retirees had a right to expect. The State did not tell them otherwise.
Retirees are asking their legislators to please also remember that approximately 40% of the cost of the prescription drug program is paid for by them plus federal reimbursements to the State.
There is no question that the right thing to do is to reinstate retirees’ prescription drug benefit. Let’s hope the members of the Appropriations Committee start the ball rolling by giving HB1230 a “favorable” report.
Peta Richkus is a retired State employee. MD Secretary of General Services, Jan 1999 – Jan 2003; Commissioner, Port of Baltimore, MD Port Administration, Jul 2008 – Jan 2014.