State Pension Board Adopts New Actuarial Assumptions, Could Lower Teacher Pension Normal Costs

At the meeting of the State Pension Board yesterday, the Board adopted new actuarial assumptions that could lower the normal costs of the teacher pension plan and considered a new method of funding the administrative costs of the system.

Gabriel, Roeder Smith & Company, the State’s actuary, presented the results of the Maryland State Retirement and Pension System experience study and the State Pension Board voted unanimously (all members present) to adopt new actuarial assumptions. The new assumptions could lower the normal costs of the Teacher’s Pension System by $31M for FY 2016.

A decrease in normal costs in FY 2016 does not affect the county contribution towards normal costs for FY 2016. For FY 2016 and every year thereafter, county governments contribute a statutorily set amount towards the teacher pension normal costs. In FY 2017, county boards of education will begin to contribute towards the teacher pensions, too, providing the difference between actual teacher pension normal costs and the county government’s contribution as required by law. For more information on the predicted decreases, read the calculation from the State actuary here.

The actuary also noted that in its current valuation, the administrative expenses of the plan are assumed to be funded from investment returns. In actual practice, the State is making additional contributions for administrative expenses, and allowing participating governmental units to deduct their administrative fees. The actuary recommended that the Board align the valuation assumption with actual administrative practice. MACo anticipates this change leading to legislation that would remove the ability of participating governmental units to deduct administrative fees. Administrative fees for county participating governmental units in the State plan combined were about $1M in 2013. For more information, see our previous posts, Locals In State Pension System May Face New Costs, and Pension Administrative Fees Withdrawn.

MACo continues to work with the State Retirement Agency and county representatives on the State Pension Board on accounting for unfunded liability allocations under new GASB rules. MACo and MML are seeking accuracy in accounting for the unfunded liabilities of the municipal pool, which are less than those of the State Pension System as a whole. The State Board did not discuss the topic yesterday. For more information about this issue, see our previous post, MACo, MML Pursue Pension Liability Reporting Process

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