Maryland Bests Goal, Bucks Trend with Pensions Performance

The State Pension System’s fiscal year 2018 returns were higher than the assumed rate of return, and its overall funding ratio continues to improve. 

The Maryland State Pension System has beat its goal for investment returns, earning 8.06% against a 7.50% target, according to a press release from the State Pension System. The System also continues to shrink its unfunded liability, counter to a national trend in the opposite direction.

The Maryland Reporter puts this year’s investment returns in context of the System’s historical gains and the size of its remaining funding gap, stating that in the long-term, Maryland still falls below its investment target and that the System is underfunded by $19 billion.

According to the Maryland State Retirement Agency, the System has earned an average of 8.07% since 1986. And, while the System is not yet fully-funded, positive returns like this year’s help reduce its unfunded liability.

Through a combination of investment performance improvements, and benefit reforms made over several years, the System’s health is improving. From the State Pension System Press Release:

“Investment returns this past year are consistent with the long term expectations for our diversified asset allocation and the Board is pleased that, as a result of its oversight and the diligent work of the System’s Investment Division, this asset growth helps to ensure the sustainability of our Plan.” – State Treasurer Nancy K. Kopp, Chair of the Maryland State Retirement and Pension System Board of Trustees.

About half of Maryland counties participate in the State pension system to provide pensions to county government employees. As members of the System, those counties have a particular interest in the System’s investment returns.

In Maryland, the General Assembly has also acted to reduce the Pension System’s unfunded liability through benefit reforms. Reforms enacted by the Legislature in 2011 continue to show positive results:

  • Contribution rates are lower for the coming fiscal year (17.42%) than had been projected (18.70%) in the June 30, 2010 valuation, and the Maryland Pension System’s funded ratio (71.8%) is higher than had been projected (64.5%) at that time
  • The System is on track to be:
    • 80% funded by 2026, and
    • 100% funded by 2039

This positive progress is the inverse of an identified national trend in pensions, as the funding ratios of many public pensions have recently declined. Maryland has made progress surmounting the hurdles experienced by public pensions across the country, including a growing number of retirees, and reduced anticipated investment returns. The increase in Maryland’s Pension funding level is largely due to benefit reforms enacted by the General Assembly, including more restrictive criteria for cost-of-living increases.

The ability of county governments and many municipalities to participate in the State Pension System allows them to provide a certain level of benefit to their employees that might not be otherwise sustainable. MACo will continue to track the System’s progress toward its goal of 100% funded status on behalf of county stakeholders.

The Chair of the Maryland State Retirement and Pension System Board of Trustees, Treasurer Nancy Kopp, will be speaking at this year’s MACo Conference. The Treasurer will be a special guest at the Women of MACo Lunch, on Friday, August 17, 2018.

Learn more about MACo’s Summer Conference: