The County Stake In The State’s Pension

The Maryland State Pension System is made up of nine retirement plans, and local governments participate in six of those plans.  Local school system employees are members of the teachers’ pension and retirement plans.  And many other local government employees are members of the employees’ and law enforcement officers’ retirement and pension plans through their governments’ participation in the state system.  In addition, some librarians and elected officials have the option to join the state system.  The local government role as participant in these plans, and its new role as payer of teacher pension costs translate to a major county stake in the Maryland State Pension System.

Participating Governmental Units

Various types of local governments participate in the Maryland State Pension System.  According to the Department of Legislative Service’s 2010 report, 121 local governmental units, including towns, counties, and special taxing districts participate. Public library associations, fire departments, and public boards or commissions add to the number.

Local participation creates an interest in the System’s overall financial health.  For several years, and especially following the 2009 recession, there has been concern that the System was not adequately funded.  A recent law passed by the General Assembly established reforms of the System and a reporting requirement.  In addition, the law states that

The Secretary of the Department of Budget and Management shall report biennially, beginning on January 1, 2013, to the Governor and the General Assembly. . . on the financial health of the [System]. The Secretary’s report shall reflect the State system’s progress towards achieving the statutory funding goals, and shall include recommendations concerning modifications to the funding methods or benefits structure.

In 2011, the Board of Trustees reported a goal to reach approximately 80% funding by fiscal year 2023.  The current funding level was well below that ratio, as reported,

At June 30, 2011, the System’s actuarial accrued liability was $55.9 billion and the unfunded actuarial accrued liability totaled $19.7 billion, resulting in a funded status ratio of 64.7%.

Another report is expected in December 2012.

Teacher Pension Shift

The costs of maintaining the Maryland State Pension System, especially through the recent recession has created a strain on the state budget.  This year, in the final hours of a special session, the General Assembly passed the Budget Reconciliation and Financing Act (BRFA) of 2012.  Among many provisions in the $35.5 billion budget plan, the BRFA 2012 shifted the cost of teacher retirement and pension plans to county governments.

According to the BRFA, the cost shift will be phased-in initially, over four years, beginning in FY 2013.  Pension costs for each local school board differ based on the number of employees in the teachers’ system, other participants in the teacher pension such as library and community colleges employees are still funded by the state.  Local school boards will pay a total of $136.6 million in state fiscal year 2013.

When the phase-in is complete, counties will have to pay the normal contribution rate to the state pension system multiplied by the total annual compensation of all the employees in the system.  For fiscal year 2016, the total cost is estimated to be $254.8 million.  While the school boards are nominally making the direct payments to the state, the BRFA bill directs each county to make a required appropriation to its schools (above and beyond the maintenance of effort funding level already required) in an amount calculated to offset the new shared costs.

For more information, see our previous related posts:

State Pension System – Governance and Oversight

State Pension System Earnings Down for Fiscal 2012

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