MACo, MML Pursue Pension Liability Reporting Process

Recently adopted accounting standards required pension systems to allocate their unfunded liabilities for reporting on financial documents. For a pooled system like the state’s (which includes many local government employees who opt in), the system is obliged to apportion liabilities across pool participants. The Maryland State Retirement Agency recently shared a “dry run” of this calculation, and MACo and MML have been engaging with the Agency staff on this process, seeking to ensure that local participants are not assigned an improper level of unfunded liability.

In a joint letter to the Maryland State Retirement Agency’s Executive Director, MACo and MML ask the Agency to reconsider its dry-run allocation of unfunded liability to local governments to account for the fact that the local government pool within the State Pension System is better funded than the pension as a whole. There are over 120 county and municipal members or withdrawn members of the State Pension System, including fourteen county governments and numerous county-supported units.

The Governmental Accounting Standard Board’s (GASB) new accounting rule (GASB 68), requires that governments show their unfunded pensions liability on their face of their financial statements. As described by GASB,

“The new standards will improve the way state and local governments report their pension liabilities and expenses, resulting in a more faithful representation of the full impact of these obligations,” said GASB Chairman Robert H. Attmore. “Among other improvements, net pension liabilities will be reported on the balance sheet, providing citizens and other users of these financial reports with a clearer picture of the size and nature of the financial obligations to current and former employees for past services rendered.”

Throughout the process of developing the allocation of the net pension liability among the plan members, the State Retirement Agency has been in communication with participating government units in the plan,  through an initial letter in the fall, and then the dry-run estimate sent out in late March.

Last week, representatives of the Agency met with MACo and MML in a meeting called together by Jim Harkins and Linda Herman, Trustees of the Maryland State Retirement and Pension System. Jim Harkins now serves as Director of the Maryland Environmental Service, and was previously the County Executive of Harford County and President of MACo. Linda Herman is the Executive Director of Montgomery County Employee Retirement Plans, and the local government representative on the Maryland State Retirement and Pension System Board.

Bolton Partners, a consultant to many county and municipal government members of the State Pension and Retirement System brought this issue to MACo’s attention and participated in last week’s meeting. The essential concern is that the dry-run allocations spread the total unfunded liability of the State System among participants, instead of separating out the municipal pool (which is not as poorly funded as the state pool). Bolton Partners estimates that the commingling of the two pools causes the county and municipal share of reported liability to increase by some $280 million.

In MACo and MML’s letter, the organizations follow-up on the Agency’s promise in the meeting to go back and reconsider the calculations were made. MACo and MML also ask the Agency to delver a written statement that the allocations made for this accounting purpose do not have any practical bearing on other calculations, such as the actual liability of the local government members of the System, or on their ongoing contribution rates.

For more information read MACo and MML’s letter here.

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