On the November 19 meeting of the Joint Pensions Committee, the Committee heard reports on fiscal 2015 contribution rates, Title 37 Non-Contributory System Transfers, and the new GASB standards. Over the course of the meeting, the Committee discussed participating governmental unit contributions rates, recommendations regarding transfers from between state and county pension systems, and the effect of the GASB standards on county reporting of unfunded liabilities following the teacher pension shift.
The Joint Pensions Committee also expressed interest in discussing the functioning and future of the pension system as a whole. Senator Kasemeyer, in particular, asked the representatives of Gabriel Roeder Smith & Company, consultants to the Maryland State Pension Board of Trustees, for their assessment of the pension’s sustainability over the next fifty years. Paul Zorn, Director of Governmental Research at Gabriel Roeder Smith, stated that based on the plan benefit changes the General Assembly has enacted and outside another large market crash, there is no reason to think that the system cannot sustain. He also noted that issues with sustainability often spur from deferring contributions, and noted the importance of Maryland phasing out the “corridor” funding method. For additional information on this see these previous Conduit Street posts: Joint Pension Committee Seeks to Phase Out Corridor Funding; Senate Pension Funding Plan – Long Term Fix, Short Term Cut.
Since the teacher pension shift, counties also now contribute a share of the normal costs of the state teachers pension system. At the Joint Pensions Committee meeting, consultants presented their annual results of the valuation of the fiscal 2013 actuarial valuation and fiscal 2015 contribution rates to the Committee. This report included the finding that because of a slightly more favorable experience in the year ending June 30, 2013, leading to slightly lower illustrative contributions on fiscal 2015, despite increases in payroll such as the 1.7% increase in actual teacher payroll in 2013. Until 2017, counties will pay a fixed amount of normal costs of the teacher pensions, as defined by statute.
The consultant will complete its methodology for the allocation of the plan’s net pension liability (a new calculation spurring from the GASB changes) and annual pension expense to each participating governmental unit by June 2014.
Title 37 Non-Contributory System Transfers
The Legislative Director of the State Retirement Agency and staff to the Budget and Tax Committee presented an overview on Title 37 transfers, or transfers between employees of different state and local pension systems. MACo was asked to survey our membership on this topic and for inclusion of our feedback in this overview. The overview accurately represents that almost all of the counties who responded reported very little transfer activity and no concern with the current law.
Title 37 provides that when an employee transfers from a contributory plan to a non-contributory plan, upon their transfer, the non-contributory plan should reimburse the employee (if requested by the employee) for their accumulated contributions, including regular interest on the contributions they made while a member of the contributory plan. If an employee moves from a non-contributory to a contributory plan then at the time of retirement, the employer would calculate the value of the employee’s deficiency applying regular interest. “Regular interest,” as described in the overview, has been found to be analogous to the rate the local system pays on its member contributions. The overview recommends that the law is maintained to provide portability and uniformity.
Unfunded Liability Reporting Under the New GASB Rules
According to Graylin Smith, Managing Partner at SB & Company, another consultant, counties will not have to report any unfunded liabilities in the teacher pension fund, despite the teacher pension shift of normal costs, based on the new GASB rules. Upon hearing this report, Senator Brinkley asked for a statement to this effect in writing from GASB. In response to the Senator’s request, Treasurer Kopp noted that this information had also only recently been reported to the Board of Trustees, and the Board would be seeking an authoritative statement from GASB.
The final meeting of the Joint Pensions Committee will be held on December 11, 2 pm in the House Appropriations Committee Room. That meeting will be a decision meeting. Additional materials from the November 19 meeting include the Department of Legislative Services’ Annual State Retirement and Pension Systems Investment Overview.