Baltimore Mayor Stephanie Rawklings-Blake introduced new legislation this week that would transition Baltimore from a defined benefit pension system to a 401k style retirement plan. This is part of the city’s effort to address a system which hasn’t been fully funded since 2003. If the plan works as promised, it could save the city $8 million a year by 2022. The Baltimore Sun reports:
“Under the proposal, new city employees would be required to contribute 5 percent of their salaries to their retirement accounts, with the city contributing an additional 4 percent. New employees would have the option of contributing an additional 2 percent, which would cause the city to contribute an additional 1 percent, according to the plan.
The legislation, which must be approved by the City Council, does not apply to current employees, elected officials or members of the city’s police or fire department.”
Moving from public sector pensions to defined contribution plans makes sense, and we’re glad to see Baltimore, a city drowning in pension costs, making moves to do it. Unlike defined-benefit systems, which are susceptible to abuse from politicians, defined-contribution plans effectively prevent politicians from making promises they can’t keep and protect individuals’ decisions to change jobs while still maintaining a secure retirement fund. The new legislation is part of a trend of states and cities transitioning to the 401k system. Some applause is due to Mayor Rawlings-Blake for backing Baltimore away from the precipice.
[Baltimore skyline photo courtesy of Shutterstock]