State Pension System Makes Changes, But Reaffirms Rate Of Return

At its meeting this week, the Board of Trustees for the State Retirement and Pension Systems made a number of changes to the system structure and operating assumptions, but declined to change the highest profile item on its consideration list, the assumed rate of return on investments used to drive required contributions.  From coverage in the Baltimore Sun (limited free views):

The 14-member pension board voted 11-1 to keep the rate at 7.75 percent, in the middle of the pack for public retirement plans nationwide.

By keeping the rate where it has been for almost a decade, Maryland will avoid the roughly $12 million gap that a change might have created in next year’s state budget. But the board agreed to change several other assumptions — regarding longevity, turnover, salaries and other matters — that could force Gov.Martin O’Malley to come up with twice that amount for the state’s contribution toward pensions for state employees, public school teachers and law enforcement officers.

Baltimore County recently opted to reduce its rate of return expectations for its own defined benefit plan, dropping that rate from 7.875% to 7.125% annually.

More background from the Sun coverage:

The assumed rate of return is the percentage growth in investments that a pension plan projects it will earn over an extended period. It is not intended to be a specific target for any given year because of the volatility of financial markets. It is used to calculate the amount of money the state must kick in each year as the employer’s contribution.

Maryland’s plan has essentially matched the 7.75 figure over 20 years and exceeded it over 25 years. But the past 10 years have been a tough period for retirement plans because of the 2008 stock market debacle and the prolonged recession that followed. In response, many plans have cut their assumptions for the future. Many others, however, have kept the assumed rate at 8 percent or higher.

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