Md. pension system earns close to nothing in past year

2002-2011 10-year bar graph. Source: State Retirement and Pension System annual report.

Source: State Retirement and Pension System annual report.

By Len Lazarick
Maryland’s $37 billion state retirement and pension system for employees and teachers earned only .36% on its investments in the fiscal year that ended June 30.

This is far below the 7.75% that is the system’s target. “The last 12 months presented a challenging environment for investors, particularly in international equity,” said chief investment officer Melissa Moye. “Most of the system’s assets added value to the fund, offsetting the negative impact of public equity for the year.”

Most of the asset categories in the fund, from cash to real estate, had positive earnings of 3% to 8%. But publicly traded stocks, which represent 42% of the portfolio, were down almost 7%.

Results “a minor disaster” says one analyst

The results “look like a minor disaster for fiscal 2011,” said Jeff Hooke, an investment banker who is chairman of the Maryland Tax Education Foundation and a persistent critic of the pension system.

10-year history graph. Source: State Retirement and Pension System annual report.

Source: State Retirement and Pension System annual report.

Earlier this month the pension system board rejected a proposal to lower its assumed rate of return from 7.75% to 7.5%.

In the statement announcing last year’s results, State Treasurer Nancy Kopp, chair of the pension system trustees, said, “The board continues to focus on long-term performance. Taking the long view, the system has on average exceeded the assumed rate of return over the last 25 years, which is a more appropriate measure of performance.”

Long-term returns

Aside from double-digit returns in 2010 and 2011 (14% and 20%), you have to go back a full 25 years to match the current assumed rate of return over the long term. Michael Golden, director of external affairs at the state retirement agency, provided the following figures:

  •  5-year earnings, 0.78%
  •  10-year earnings, 5.89%
  •  20-year earning, 6.83%
  • 25-year earnings, 7.85%

All three New York bond rating agencies last week expressed concern about Maryland’s pension liabilities.

Fitch Ratings explicitly rejected the notion that 7.75% is realistic and uses the more conservative figure of 7%. This means that instead of state employee and teacher pensions now being funded at about 64%, the system actually had about 60% of the money needed over the next 30 years and that the unfunded liabilities of the plan were not $20 billion but more like $24 billion.

The rate of return on investments is crucial because most pension systems gain more money each year from their investments than they get from contributions by employees and the state budget.

California does better

Some of the states comparable to Maryland have not yet reported results, but California, with the largest state pension system valued at $233 billion, did two weeks ago. It announced  “a dismal 1% annual return on its investments, a figure far short of projections that will likely bring pressure on California’s state and local governments to contribute more money,” according to an Associated Press story.

“I think California is a good barometer,” Hooke said. “I just think Maryland officials have to rethink how they’re doing things.”

California pension officials cited reasons similar to Moye’s for that low performance.

1993-2002 10-year history graph. Source: State Retirement and Pension System annual report.

1993-2002 10-year history graph. Source: State Retirement and Pension System annual report.

Besides poor investment performance as shown in the accompanying charts, Maryland governors have consistently refused to put in the “actuarially required contribution” to match the pension promises made to employees and teachers.

In this year’s budget, legislators told the retirement system to come up with a plan to phase out the “corridor method” of funding that has permitted lower contributions.  The system’s board, headed by Kopp, has recommended the “corridor method” be eliminated.

Lowering the assumed rate of return and putting in the required contributions would cost hundreds of millions more, money that would likely have to be taken out of ongoing programs.

About The Author

Len Lazarick

Len Lazarick was the founding editor and publisher of and is currently the president of its nonprofit corporation and chairman of its board He was formerly the State House bureau chief of the daily Baltimore Examiner from its start in April 2006 to its demise in February 2009. He was a copy editor on the national desk of the Washington Post for eight years before that, and has spent decades covering Maryland politics and government.


  1. Hungrypirana

    The Trustees’ press release conveying break-even results is bad news when one considers the state paid $221 million of investment advisory fees (assuming 2012 fees are similar to last year.)

    The pension plans’ CAFR (due December, 2012) will disclose the more intractable problems. For instance, the unabated growth of unfunded pension obligations during the last 10 years has built to staggering levels. On 6-30-02, unfunded pension obligations were $1,808020,859. And as of 6-30-11, they were $19,739,886,819. This 1,100% increase is not something the state will convey in any press release.

    Folks don’t talk about abrogation of the state’s compact with its retired workers. However, it isn’t hard to find evidence of what the future may hold. A shot across the bow earlier this week involved the US Postal Service default on $5.5 billion of payments due today and the likelihood of another $5.6 billion default into the same fund in September.

    The State of Maryland is the statutory guarantor for the payment of all pensions, annuities, retirement allowances, and other benefits of the System. And taxpayers are the state’s sole last resort. What do you think will happen when Maryland’s legislators debate imposing a surcharge on taxpayers for benefits promised 10 to 20 years previous but never funded?

  2. Dale McNamee

    It’d be wonderful if the reports published here were covered by our so called ” local news media ” and broadcasted…I’ll learn more about trivia, fluff, and shootings and murders…

    But, information about this and other fiscal and legal malfescience won’t make it…

    Hey, how about them O’s & Ravens ?

    • Dukehoopsfan

      Practice is open Saturday at M&T.

  3. Dukehoopsfan

    42% of peoples retirement funds are in stocks?  Unbelieveable!  Why don’t they just buy scratch off lottery tickets?

  4. Dale McNamee

    Any other stockbroker, financial planner, pension manager who produced such results would be “perp walked “, thrown in jail, and stripped of all assets for restitution…But, since these are State Employees… It’s OK !

  5. abby_adams

    So MD governors fail to put in “actuarially required contributions” to match pension promises; pension trustees take the “long” view on fund performance dismissing short term losses; and all 3 NY bond rating agencies are concerned about MD pension liabilities. Sounds like another MD taxpayer bailout in the picture. The more we learn abt the mismanagement by the Dem majority in this state, the angrier taxpayers get.

  6. Jlg212

    If they can’t play by the rules then why are they in this business of pensions? We need folks who know the risks and how to invest the money for a better ROI. They always look for the cheapest way out of a problem instead of fixing it correctly in the first place.

  7. Gaypinder


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