Could cost the state $189 million more next year
Maryland will likely have to increase payments to its teacher and employee pension funds by $189 million next year, lawmakers learned Tuesday as officials with the State Retirement Agency broke down its results from fiscal 2009.
Pension officials said the state’s pension funds have promised to pay out $17.5 billion more than Maryland has put aside. The State Retirement and Pension System of has about $28.6 billion.
The figures were revealed at a meeting of the General Assembly’s Oversight Committee on Pensions, and could have a big effect on the state’s budgeting process next year. Maryland will likely have to ramp up its contribution to its pension funds from $1.2 billion to $1.4 billion, more bad news for budget officials already facing a deficit of more than $2 billion.
The state’s contribution next year is not likely to make a big dent in the state’s unfunded pension liability. To catch up more quickly, the state would likely have to put aside an additional $541 million on top of the $189 million it will contribute next year, said Del. Murray Levy, D-Charles. That would bring the state’s pension contributions close to $2 billion next year.
However, he acknowledged that won’t happen.
“I don’t think we’re even going to do the $189 million,” Levy said.
Though the liabilities are spread out over 25 years and will not come due all at once, there are differences on the oversight committee about how quickly the state should catch up. Del. Melony Griffith, D-Prince George’s, who is the House chairwoman, said it’s not wise, nor is it feasible to put aside much more than what is required next year.
“It’s far too early to make changes to the way that the system is funded,” she said.
The big funding drop comes largely from an $8 billion investment loss last year, as the state’s pension investments took a big hit during a year of market turmoil. The losses were reported several months ago, but as the agency begins to release more detail about performance, lawmakers are beginning to grapple with what it means.
“The markets were very mean to us last year. There’s nothing that can change that,” said Brian Murphy, president of Gabriel Roeder Smith and Co, who works as an actuary for the state. “The markets were mean to everybody who was in them.
The state’s funded ratio — which measures how much the state has put aside compared to its estimated liability — has now fallen to 65 percent. It was at 78.6 percent last year and has fallen gradually since 2003.
That year, the state began a program that allowed the state to slow down its contribution rates if the pension program was funded between 90 and 110 percent. The “corridor” payment method also slows down payments for the state to get back up to that level, which largely accounts for the difference between Levy’s figure and the $189 million that the state will likely pay.