By Len Lazarick
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.