In 2012, the State began a shift of $255 million of costs associated with the Maryland State Retirement and Pension System to local governments. This blog series, which will run over the course of the next several months, will serve to educate public officials and others on the Maryland State Retirement and Pension System (the “System”), including the county’s current stake in pension expenses; the financial health of the System; pension investment strategies, and the topic of rate of return. In the last installment, we will share some of the possible legislative actions that MACo will seek in the upcoming session.
Maryland State Retirement and Pension System – Overview
The Maryland State Retirement and Pension System (the “System”) administers death, disability and retirement benefits on behalf of more than 350,000 active and former State employees, teachers, State police, judges, law enforcement officers, correctional officers and legislators. Over 100 local governmental agencies voluntarily participate in the System, though the State of Maryland being the largest sponsor.
Key benefits and services on the System are survivor protection for employees who die before reaching retirement; disability coverage in the event that an employee is unable to continue working due to a disabling injury or illness; and a basic monthly retirement allowance based on the member’s age, service, and salary upon retirement with options for payment of a continuing allowance to the member’s survivor. The System includes annual cost-of-living adjustments.
The Board of Trustees
A 14-member Board of Trustees manages the System’s multi-billion dollar investment portfolio. The Board is made up of the following members:
Three ex officio state government officials including
- The Secretary of Budget and Management
- The State Comptroller
- The State Treasurer
Five representatives of the various retirement plans, elected by their membership to serve four-year terms, including
- A representative elected by the active members of the Employee’s Retirement System, the Employees’ Pension System, the Correctional Officers’ System, the Legislative Pension Plan, the Local Fire and Police System, and the Law Enforcement Officers’ Pension Plan;
- A representative elected by the retired members of the Employee’s Retirement System, the Employees’ Pension System, the Correctional Officers’ System, the Legislative Pension Plan, the Local Fire and Police System, and the Law Enforcement Officers’ Pension Plan;
- A representative elected by the active members of the Teachers’ Retirement System and the Teachers’ Pension System;
- A representative elected by the retired members of the Teachers’ Retirement System and the Teachers’ Pension System;
- A representative elected by the active and retired members of the State Police Retirement System
One representative of participating governmental units (mostly county and municipal governments, but also including certain independent agencies), appointed by the Governor to a four-year term
Five members of the public with experience overseeing pension systems or other similar organizations, appointed by the Governor with the advice and consent of the Senate to four-year terms.
In general, the Board of Trustees is responsible for the management, general administration, and proper operation of the System. This includes maintaining fiduciary duty for the operation of the retirement and pension plans and making sure that all assets of the System are held exclusively to benefit the members of the System.
The Board adopts the actuarial assumptions necessary to properly fund the System and approves qualified disability retirements. The Board also regularly adopts rules, regulations, policies, and procedures necessary to administer the various plans. The Board of Trustees also exercises oversight of the Maryland State Retirement Agency by its authority to appoint the Agency’s Executive Director and Chief Investment Officer.
The Board of Trustees appoints boards and committees to advise it on specific and technical matters. These include the Investment Committee, an actuary, and one or more medical boards. The Board designates a medical board to arrange and evaluate medical examinations required by the System plans and to investigate applications for disability retirement. Each medical board is composed of three physicians ineligible to participate in the System.
Though not legislatively required, the Board of Trustees have appointed an administrative committee to review issues that require additional study and report back to the full Board. The Board has also created an audit committee, a corporate governance committee, and a securities litigation committee. Current Board members and committee members may be found here.
The Maryland State Retirement Agency
The Maryland State Retirement Agency operates under the supervision of the Board of Trustees, and its Executive Director is appointed by the Board. The agency’s five divisions, administrative, finance, investment, internal audit and information services operated with a $29.9 million budget in fiscal 2010. The investment division of the agency is responsible for the management, control, and investment of the System’s funds, and maintaining the equity and bond index funds, the self-liquidating bonds and the reinvestment reserve. The investment division’s Chief Investment Officer, who is a direct appointment of the Board, has the authority to hire and fire asset managers.
Since 1975, the General Assembly has exercised oversight of the State Retirement and Pension System. The President of the Senate and the Speak of the House of Delegates each appoint members to an interim Joint Committee on Pensions. This committee’s membership is typically drawn from the Senate Budget and Taxation Committee and the House Appropriations Committee, which handle pension legislation during the regular session.
Recent legislation passed by the General Assembly has modified the System in an effort to reduce its cost and to shift costs to local governments. The Assembly passed Chapter 397 into law in 2011, increasing member contributions, linking cost-of-living adjustments to investment returns, and increasing vesting and retirement eligibility requirements for the System. Then, in 2012, the Budget and Reconciliation and Financing Act shifted funding responsibility of pension costs for local school, library, and community college personnel who are members of the Teachers’ Retirement System or Teachers’ Pension System to local governments. Both of these legislative changes will be described in more detail in subsequent articles in the blog series.
Two thorough documents dealing with the roles of the Board and the Executive Director are also available online from the System website, for fuller detail on these structures:
Charters –This document defines the Board of Trustees and its functions and responsibilities as overseers of the System.
Governance Policy — This document describes the manner in which the members of the Board of Trustees conduct themselves in their respective duties and the governance rules for the Board as a whole.