A Closer Look at State Pension Funding

A recent Washington Post editorial asserts that Maryland’s pension and retirement fund may need a closer look based on a May report by Moody’s.  The Moody’s report uses new methodology to determine pension funding and couches state pension indebtedness in the context of state governmental revenues.  The letter references the report, stating,

Maryland had the ninth-biggest unfunded liability, according to Moody’s: $28.6 billion in fiscal 2011. This is about $8 billion higher than the state reported last year based on its assumed 7.75 percent return on investment.

The Moody’s report is based on 2011 data, and thus does not reflect legislative changes that the General Assembly has made in recent years to reduce pension costs and eliminate the corridor funding method.  In the report, Moody’s recognized Maryland’s progress in that area, stating,

Maryland shifted to a corridor funding method, which phases in changes in [actuarially required contributions] ARC, in 2002. In response to subsequent deterioration of the pension plan’s funded status, the 2013 legislative session enacted a new plan to gradually return to full ARC payments over 10 years.

The Post editorial also notes the Moody’s numbers do not reflect the subsequent impact of reforms enacted over the last three years by Gov. Martin O’Malley and the General Assembly.  The editorial maintains, however, that “they still have work to do.”

For more information on the Moody’s report, see the letter from the Post editorial board, the report, or our previous Conduit Street post, Report Puts Pension Funding Gap In New Light