April 17, 2013

Pension system advisor ‘very disappointed’ in legislative cut in contribution

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Pension board

Advisor Brian Murphy, left foreground, testifies to state pension board Tuesday.

By Len Lazarick

Len@MarylandReporter.com

The outside advisor for the Maryland pension system told its Board of Trustees Tuesday that he was “very disappointed” that the legislature reduced the state’s payment into the retirement fund by $100 million in budget action this month.

The money comes from $300 million in added contributions of state employees and teachers passed in 2011. It is being set aside for the possible federal budget cuts from sequestration.

The State Retirement Agency and the Department of Legislative Services were also told to look into the impact of further reducing these payments in the future.

If the legislature continued “tinkering” with the $300 million added contribution, said Brian Murphy of Gabriel Roeder Smith & Co., it would show the absence of “a firm funding policy” and require recalculating the annual contribution. GRS is the system’s actuary.

“That’s very sad for the system,” Murphy told the 14-member board holding its monthly meeting in Baltimore. “I can’t tell you how disappointed I was.”

State Treasurer Nancy Kopp, chairman of the board of the State Retirement and Pension System, agreed. “I opposed it strongly,” she said.

Money came from extra contributions

Comptroller Peter Franchot, vice chairman of the board, had raised the issue about the cut in pension contribution.

“It just doesn’t result in what our future obligations demand,” Franchot said. He pointed out that the state is now taking “an extra 2% tax” from state government workers and teachers “in order to protect the security of the system.”

“I hope you’ll hold everybody’s feet to the fire,” Franchot told Murphy.

The legislature in 2011 raised the contribution rate from 5% to 7% of salary and reduced some benefits to reduce the long-term liabilities of the system.

Anne Gawthrop, director of legislative affairs for the State Retirement Agency, said the cut actually amounted to $87 million from the general fund, and would be restored to the pension contribution if the governor does not use the money by Jan. 1 to offset federal sequester cuts.

The legislative cut came at the same time that the General Assembly approved a plan to eliminate the “corridor method” of calculating the state’s employer contribution that had reduced annual required contributions over the past decade. The pension board had been trying to get that change passed for several years.

Good news on investments

The board got good news for the pension system from Chief Investment Officer Melissa Moye. The recent run-up in the stock market has brought the Maryland pension fund back to its record 2007 high of $40.6 billion at the end of March.

“It’s all good news,” said Moye. According to preliminary and unaudited figures, the fund is up by $3.5 billion since June — earning 11.3% for the fiscal year that started July 1. The fund has is earned 7.88% over the past 10 years, beating its target of 7.72%.

The fund now has made back all its losses from 2008 and 2009.

  • cwals99

    The last comment ….the fund has made back all its losses from 2008-2009….government watchdogs have looked at these state and local public pensions funds and we know that in Maryland and in Baltimore these pensions were taken out of then safe bond market investments and placed into the stock market in 2007 just before the crash. This was deliberate as a way to boost the market for ever more gains before the crash. It was also malfeasance.

    Now, everyone knows that you buy low and sell high and the crash in 2008 would have been the low. Did you know that the Fed’s policy of 0% interest giving free money to banks happens just because of this fact. Loading banks and corporations with free money to invest in the stock market at its lowest has made billions of dollars in profits for corporations and banks. This has nothing to do with free markets, democracy, or Rule of Law….but they are doing it. Now, let’s look at those pensions sitting there at 2008 with what was almost a 40% loss from what I’m told. All that was done for them is allow this diminished amount to grow back with the booming rise back to normal these few years fueled by all that free Fed money. So, instead of being where they were before the crash…..40% richer and building on those investments almost doubling the pension fund money as is happening with the banks and corporations, pols are telling us the pensions have made back the losses and now its time to cut. DOES THAT TAKE NERVE OR WHAT? Loses by malfeasance, missed boom in gains given to banks and corporations but not people, and on top of that….we are taking more money from you because we have not yet recovered tens of trillions of dollars in corporate fraud over this past decade. WOW. Are we in Uzbekistan?

    If we had a working Justice System this is what would happen:

    First, our State Attorney General would be bringing billions of dollars in mortgage fraud penalties back to Maryland and actually distributing the settlement money to the victims of the fraud….in this case the pension holders.

    Second, our State Attorney General would be investigating, prosecuting, and penalizing the Comptrollers Office at State and local level for colluding with Wall Street in moving those pension funds from bonds to stocks when they all knew the crash was coming. The government officials are fined and fired…..Wall Street pays for all the losses in 2008-2009. Then the pensions actually see that double in gains as it should. IMAGINE THAT!!

    Lastly, from the billions in mortgage fraud yet to be recovered all of the decades of underfunding of public sector pensions is restored to the pension funds causing them to be healthy and not needing any of the cuts these pols are saying is coming. THESE ARE THE VERY POLS INVOLVED FROM THE START….THINK O’MALLEY AND HIS HAND IN DEFUNDING!

    The American people are sick and tired of this attack on public assets and the failure to bring justice!!!

  • hungrypirana

    Ms. Moye reports the fund is up $3.5 billion for the nine months’ ended March 31. While that’s good news, this (unrealized) investment income is not indicative of the fund’s health. The latest audited data (as of June 30, 2012) show the fund is 64% funded and needs $21 billion to (actuarially) reach full funding. This funding deficiency is well above the State’s Aaa-rated peers, according to the bond-rating agency Moody’s.

    I agree with Mr. Franchot’s comment about “an extra 2% tax” on State workers. But that’s not the full story. The $100 million or so reduction of the state’s promised payment into the retirement fund is equivalent to off-balance sheet debt constructively borrowed from the State’s workers. Moody’s and other bond rating agencies will notice this creative borrowing. And it could more than cancel
    whatever positive effects that may accrue from recent strengthening of the Transportation Fund lockbox.

    Franchot knows better than to tell his actuary to “hold everybody’s feet to the fire….” The actuary is bound by professional ethics rules over independence and conflicts of interest. Those criteria preclude the actuary from acting in a way intended to influence political action favorable to the plan or it’s covered workers. Voters, not the actuary, are responsible for holding feet to the fire.

  • Karl Pfrommer

    The pension system in truth lost more than 40%.
    They lost 40% in 2008 and more in the past five years.
    They lost the 40% investment gains on the 40% they had lost that’s an additional 16%.
    That’s a total 56% loss in the last five years in spite of the recent bull market.

    Now they are robbing Peter to pay Paul.
    They had robbed the transportation Trust Fund to pay for pork without having to raise taxes.
    This helps incumbents get reelected.
    Their constituents like having the state pay for these pet projects and charitable gifts and long term loans.
    Voters like the pork because they wrongly believe they are not being taxed to pay for the pork.
    TOTAL THE CHARITABLE GIVEAWAYS
    SPONSORED BY NANCY KOPP WHEN SHE WAS A LEGISLATOR.
    This information is available on line.
    Take a look at all legislators’ charitable pork bills for five, ten, whatever, years.
    calculate their total and annual average cost.
    Now state employees are paying for pork because their pension money
    (and it’s potential compounded gains or losses)
    is being siphoned off to fuel the Transportation Trust Fund.
    However, anyone who stays in Maryland will eventually have to pay the taxes
    when our pension fund’s mismanagement result increases the 46% unfounded liability
    Then the state will have to pay a higher percent rate to borrow because their bond rating has been lowered.
    This is a state house of cards. It’s a game kicking the can down the road.
    Marylanders will have to pay for these games later when these politicians are no longer in office.
    They’ll be living off their own separate sacrosanct pension funds.