Published on February 20th, 2013 | by Len Lazarick0
Legislation seeks to lower projected returns for pension system investments
Republican lawmakers are pushing a bill to cut the expected rate of return on Maryland $38 billion pension investment portfolio — a move that would effectively add billions of dollars to the state’s pension liabilities. The move to reduce what the GOP considers an unrealistic 7.75% rate to something like the corporate rate several points below that drew strong opposition from the State Retirement Agency at a hearing Tuesday.
Another bill backed by county governments to expand the 14-member Board of Trustees of State Retirement and Pension System by adding a county representative was opposed by the state teachers union at the House Appropriations Committee hearing.
The Truth in Pension Accounting Act
HB387 , the Truth in Pension Accounting Act, seeks to address the 7.25% rate of return the pension system has earned in the last 10 years by lowering the current pension rate of 7.75% to echo the interest rate dictated by the Internal Revenue Code for corporations and private pension plans. Currently, state and local governments get to choose their own rates of return, which average 8%.
“We need to face the reality that a rate achieved in the past most likely will not be achieved in the near future as the economy is still stalled,” said Del. Gail Bates, R-Howard, the bill sponsor. “This bill allows us to be honest to our employees and retirees that when dollars are needed, they will be there to keep the promises we have made”
Pension system officials rejected the bill on the grounds that the change would undermine the General Assembly’s goal of reaching 80% funded status for the system, double the contribution required from state and local governments, and weaken the earning-power of the pension fund.
“The earnings power of the pension fund substantially affects the cost to taxpayers,” said Dean Kenderdine, executive director of the State Retirement Agency. “Financial reporting and disclosures of pension costs and liabilities should reflect the long-term cost to taxpayers by utilizing the long-term expected rate of return of the pension fund.”
A county voice on state pension board
Sponsored by Democratic Dels. Adrienne Jones and Melony Griffith, HB390 proposes adding a county representative to the 14-member pension system board.. The bill seeks to give county governments more voice in the SRPS now that counties are required to help pay for teacher pension costs by a law enacted last year.
“Adding this board member … better reflects the new county role in supporitng the system, and will add a valuable perspective to the board’s oversight and deliberations,” said Michael Sanderson, executive director of the Maryland Association of Counties.
However, teachers groups have pointed out that the initiative to add a board member is based upon a double standard of sorts.
Counties have not sought a voice before
“Counties have been required to fund full costs for their participating employees, while they will be funding only normal costs for their school system employees,” the Maryland Retired School Personnel Association said in a statement. “Yet they have not campaigned for additional representation for their county and municipal employees already requiring this full funding.”
The state’s largest county governments are not part of the state system, but run their own retirement plans for their non-school retirees. But now all counties must help fund teacher pensions, with the largest counties contributing the most.
Education groups have expressed concern that adding a county representative could open the doors to further requests to enlarge the board — setting a precedent that could ultimately make the board “unwieldy” and “ineffective.”
“We believe an appropriate compromise position would be to designate one of the current gubernatorial appointees to be a county representative,” said Randal Mickens, a lobbyist for the Maryland State Education Association. “This option would ensure that there would continue to be a county perspective represented on the board without expanding the board.”