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Maryland public pensions
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Pension system
Number of pension systems 6
State pension systems: Teachers' Retirement System
State Employees' Retirement System
State Police Retirement System
Judges' Retirement System
State Law Enforcement Officers' Pension System
Correctional Officers' Retirement System
System type: Defined benefit plan
Pension health (2012)[1]
Fund value: $37,248,402,000
Estimated liabilities: $57,869,146,000
Unfunded liabilities : $20,620,744,000
Percent funded: 64.37%
Percent funded change: Decrease.svg0.33%[2]
Pension fund members (2012)
Total members: 376,717
Active members: 192,994
Other members: 183,723
Other state pension information
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Public pensions
State public pension plans
Public pension health by state

Maryland public pensions are the state mechanism by which state and local government employees in Maryland receive retirement benefits. In Maryland, there are six pension systems: the Teachers' Retirement System, the State Employees' Retirement System, the State Police Retirement System, the Judges' Retirement System, the State Law Enforcement Officers' Pension System and the Correctional Officers' Retirement System.

According to the United States Census Bureau, the state has 14 locally-administered pension systems.[3]

As of 2012, the system had an unfunded liability of approximately $20.6 billion and was 64.37 percent funded. According to the Pew Center on the States Widening Gap update, a report on pensions in all 50 states, Maryland failed to pay its full annual pension contribution from 2005 to 2010. According to the report, most experts agree that a fiscally sustainable system should be at least 80 percent funded.[4]

Maryland’s cost to fund the pensions for some 105,000 current and retired educators soared to nearly $1 billion annually in 2012.[5]


Pension plans

Maryland public pensions are administered Maryland State Retirement and Pension System, which includes six major systems:

  1. State Employees’ Retirement System
  2. Teachers' Retirement System
  3. State Police Retirement System
  4. Judges’ Retirement System
  5. State Law Enforcement Officers’ Pension System
  6. Correctional Officers' Retirement System

In fiscal year 2012, according to the MSRPS Actuarial Valuation Report, the state had a total of 192,994 active members in its retirement plans.[6] Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[7]

The following data was collected from the MSRPS 2012 Actuarial Valuation Report, which measured fund status as of June 30, 2012,. Valuation reports are annual reports produced by outside consultants, using unaudited data provided by the pension systems themselves, in order to determine what employers in the system should contribute in the coming year to maintain or improve the fiscal health of the pension funds.

The Government Accountability Office (GAO) and Pew Research Centers cite a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggests that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[8][9] The column "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return, which would make it easier for states to hit their pension requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[10]

Basic pension plan information -- Maryland State Retirement and Pension System
Plans Current value Percentage funded Unfunded liabilities Membership
State figure SBS figure[11] State figure SBS figure[11]
Teachers' Retirement System[6] $22,523,978,000 65.76% N/A[12] $11,728,737,000 N/A[12] 103,694 active members
State Employees' Retirement System[6] $12,667,592,000 62.45% $7,615,436,000 85,174 active members
State Police Retirement System[6] $1,134,511,000 62.1% $692,035,000 1,332 active members
Judges' Retirement System[6] $330,154,000 78.4% $91,132,000 294 active members
State Law Enforcement Officers' Pension System[6] $580,826,000 54.28% $489,261,000 2,410 active members
State Law Enforcement Officers' Pension System[6] $11,341,000 73.24% $4,143,000 90 active members
TOTALS $37,248,402,000 64.37% 34% $20,620,744,000 $73,064,387,000 192,994 active members

Annual Required Contribution

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for.

According to a report by the Pew Center on the States, between 1999 and 2008 Maryland paid 89.18 percent of its annual required contribution.[13][14]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[15] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[16]

ARC historical data[6]
Fiscal year Teachers Employees State Police
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $1,288,886,000 71% $721,776,000 66% $54,452,000 87%
2011 $1,224,606,000 75% $677,783,000 69% $51,292,000 88%
2010 $889,605,000 92% $524,797,000 75% $37,114,000 69%
2009 $753,475,000 89% $464,633,000 76% $31,040,000 55%
ARC historical data[6]
Fiscal year Judges Law Enforcement Correctional Officers
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $24,077,000 100% $56,624,000 100% $809,000 100%
2011 $23,854,000 100% $57,070,000 100% $796,000 100%
2010 $19,955,000 100% $47,756,000 100% $753,000 100%
2009 $17,520,000 100% $46,140,000 100% $752,000 100%

Historical funding levels

Historical pension plan data
Year Value of assets Accrued liability Unfunded liability Funded ratio
2007 $37,886,936,000 $47,144,354,000 $9,257,418,000 80.36%
2008 $39,504,284,000 $50,244,047,000 $10,739,763,000 78.62%
2009 $34,284,569,000 $52,729,171,000 $18,444,603,000 65.02%
2010 $34,688,346,000 $54,085,081,000 $19,396,735,000 64.14%
2011 $36,177,656,000 $55,917,543,000 $19,739,887,000 64.70%
Change from 2007-2011 -$1,709,280,000 $8,773,189,000 $10,482,469,000 -15.66 percent

Rate of return

Maryland presumes a 7.75 percent return rate on its pension investments.[6] At the close of fiscal year 2010, the 10-year average rate of return was 2.10 percent. The system posted preliminary returns of 20.04 percent for fiscal year 2011, raising the 10-year return to 5.01 percent.[17]


According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments.[18] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[19] When states lower the rate of return in an effort to predict investment earnings accurately, it increases the current plan liabilities, thereby lowering the percent funded ratio and causing the ARC to increase. This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[20] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[21] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[22]

The 2008 financial crisis had a devastating effect on pension plans nationwide and has resulted in slower economic growth and increased market volatility. In light of this, some market strategists find the 8 percent assumption to be overly ambitious. Stanford University Finance Professor Joshua Rauh stated that using past investment performance in this economic climate was "dangerously optimistic."[23] Advocates for a lower assumed rate of return argue that the standard assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected, the fund would have a surplus and smaller future ARCs, which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[24][25][26][27][28]

On the other hand, traditional public pension plan advocates argue that the dip observed in recent years is not sufficient proof of a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[23]

The National Association of State Retirement Administrators compiled data on the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20-, and 25-year periods ending in 2013. While the median annualized rate of return failed to meet the 8 percent assumption that most public pensions assume over the 5- and 10-year periods, it was just shy (7.9 percent) over the 20-year period, and it exceeded 8 percent for the 1-, 3-, and 25-year periods. It is important to note that the NASRA data is reporting the median returns, indicating that even though median annualized returns exceeded 8 percent in the 25-year period, the investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[29]

In September 2013, the nonprofit organization State Budget Solutions published an analysis of state pension funding levels. In its calculations, State Budget Solutions used a 3.2 percent rate of return, the 15-year Treasury bond yield as of August 21, 2013, to discount plan liabilities.

The research found that in all states combined, state public employee pension plans have only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. According to the report, Maryland's public pension plans were 34 percent funded, making it the 31st most funded state.[30]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.67 percent for Maryland) instead of the state reported assumed rates of return (7.75 percent for Maryland).[31]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 (Nebraska) percent to 241 (Illinois) percent of governmental revenues in fiscal year 2011.[31]

The adjusted net pension liability for Maryland's pension system in fiscal year 2011 was ranked ninth.[31] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - Maryland
Governmental revenue* Personal income State GDP Per capita
State findings 99.5 percent 9.7 percent 9.5 percent $4,908
National ranking 10th 14th 13th 12th
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[31]

Pension fund management fees

See also: Public pension fund management fees

In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012 South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year) and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets) and its five-year rate of return was 7.53 percent.[32]

The table below presents the information collected by MPPI for Maryland and surrounding states. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented. Maryland had much lower total net assets when compared to all neighboring states except Delaware.

Public pension fund management fees, 2011-2012
State Fiscal year Total net assets at the beginning of the year Total net assets at the end of the year Total management fees Management fees as a percentage of total net assets at the beginning of the year Five-year rate of return for the pension fund
Maryland 2012 $37,592,752,000 $37,178,726,000 $241,489,000 0.64% 0.78%
Delaware 2012 $7,648,780,000 $7,536,367,000 $47,318,000 0.62% 3.90%
New Jersey 2012 $81,067,610,282 $77,883,990,040 $224,200,000 0.28% 2.46%
New York 2012 $315,448,861,000 $316,880,795,000 $874,147,529 0.28% 2.91%
Pennsylvania 2012; 2011 $77,319,283,000 $73,140,758,000 $682,878,000 0.88% 1.00%
1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."[32]
Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," July 1, 2013


Enacted reforms


SB 813

Signed into law on May 16, 2013, this bill alters eligibility for certain benefits in the State Retirement and Pension System. This bill makes members of the State Retirement and Pension System eligible to receive creditable service at retirement for the total amount of unused sick leave accrued by the member in certain systems in the State Retirement and Pension System. It also provides for the calculation of the creditable service for unused sick leave accrued by a member in certain systems and requires the Department of Legislative Services and the State Retirement Agency to provide a report on or before a certain date.[33]


SB 335

Signed into law on May 22, 2012, this bill changed eligibility for the Judges’ Retirement System. It altered the rate of member contributions for members of the Judges' Retirement System and required individuals who became members of the Judges' Retirement System on or after a specified date to earn a specified amount of eligibility service before becoming eligible to receive specified retirement allowances. It also altered the calculation of a normal service retirement allowance for certain members of the system.[34]

HB 72

The Budget Reconciliation and Financing Act was signed into law on May 19, 2011. The Act included extensive changes to Maryland retirement plans, including increasing employee contribution requirements for most current and future members of state plans. Members of the Employees’ Pension System and Teachers’ Pension System saw member contribution rates increase from 5 percent to 7 percent. The Law Enforcement Officers’ Pension System rates were increased from 4 percent to 6 percent in FY 2012 and to 7 percent in FY 2013 and thereafter.

The legislation also establishes the goal of reaching 80 percent actuarial funding within 10 years by reinvesting a portion of the savings generated by the benefit restructuring into the pension system in the form of increased state contributions above the contribution required by statute. In fiscal years 2012 and 2013, all but $120 million of the savings generated by the benefit restructuring were intended to be reinvested, with the $120 million dedicated to budget relief each year. Beginning in FY 2014, the amount reinvested in the pension fund will be subject to a $300 million cap, with any savings over that amount dedicated to budget relief.[35]

Proposed reforms


HB 780

This bill, which died in the House on March 20, 2013, would have altered participation in the state retirement system. It provided that specified employee would not be considered members of the Employees' Pension System or the Teachers' Pension System of the State Retirement and Pension System if the employees made an election to join the optional retirement program of the State Retirement and Pension System. It also would have required that specified participating employers provide specified employees with the opportunity to participate in the optional retirement program.[36]


HB 661

This bill, introduced in the Maryland House of Representatives on February 8, 2012, would have required counties to pay a portion of employer contributions for local school board employees and community college employees who are members of the Teachers' Retirement System or the Teachers' Pension System. It was withdrawn from further consideration on April 9, 2012.[37]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has 14 locally-administered pension systems.[3]


See also: Public pension disclosure and Governmental Accounting Standards Board
  • MSRPS posts relevant information on its website.[38] Available information includes investment and financial reports, legislation that may affect policies, member forms and more.
  • Quarterly investment fund performance reports are available.[39]
  • State law does not directly mention the public pension system in regulating pay-to-play or gift exchanges involving pension managers and board members. However, gifts and exchanges are regulated by the pension system's rules, and pension managers and board members are required to file regular asset disclosure forms.[40]

Recent news

This section displays the most recent stories in a Google news search for the term "Maryland + public + pensions"

All stories may not be relevant to this page due to the nature of the search engine.

Maryland Public Pensions News Feed

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See also

Additional reading

External links


  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. 3.0 3.1 "Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010," United States Census Bureau, April 30, 2012
  4. Pew Center on the States, "Widening Gap Update," accessed November 27, 2013
  5. The Washington Post, "Governor O’Malley’s budget raises taxes on Maryland’s high-earners," January 17, 2012
  6. 6.0 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 Maryland State Retirement and Pension System, "2012 Actuarial Valuation Report," accessed August 22, 2013
  7. Organisation for Economic Co-operation and Development, "Pensions Glossary," accessed November 27, 2013
  8. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007. accessed October 23, 2013
  9. American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," July 2012. accessed October 23, 2013
  10. Governing Magazine, " Is There a Plot Against Pensions?" October 14, 2013
  11. 11.0 11.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  12. 12.0 12.1 Analysis only available for system totals and not individual funds.
  13. Pew Center on the States, "The Trillion Dollar Gap: Maryland," February 18, 2010
  14. Government Accounting Standards Board, "Annual Required Contribution (ARC)," accessed October 17, 2013
  15. Reuters, "Little-known U.S. board stokes hot pension debate," July 10, 2012
  16. State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  17. Bloomberg, "States Miss Pension Targets by 50% Even With Private Equity," July 28, 2011
  18. "The Widening Gap Update,” Pew Center on the States, accessed October 17, 2013
  19. The New York Times "Public Pensions Faulted for Bets on Rosy Returns," May 27, 2012
  20. Benefits Magazine "Public Pension Funding 101: Key Terms and Concepts," April 2013. accessed October 23, 2013
  21. Crain's Chicago Business "State teachers pension board lowers expected rate of return," September 21, 2013. accessed October 23, 2013
  22. Huffington Post "California Pension Funds Expect Lower Investment Return," March 14, 2012. accessed October 23, 2013
  23. 23.0 23.1 Governing "Expert: Governments Are Masking Their Pension Liabilities ," October 25, 2013. accessed October 25, 2013
  24. The Washington Post "Kansas’s pension funding gap just grew by $1 billion," September 6, 2013. accessed October 25, 2013
  25. Topeka Capital-Journal "KPERS' unfunded liability rises to $10.2B," September 4, 2013. accessed October 25, 2013
  26. Wall Street Journal "Pensions Wrestle With Return Rates," October 10, 2011. accessed October 23, 2013
  27. The Courant "Promising Too Much On Public Pensions," August 10, 2012. accessed October 23, 2013
  28. Business Wire "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," October 22, 2013. accessed October 25, 2013
  29. National Association of State Retirement Administrators "Issue Brief: Public Pension Plan Investment Return Assumptions," October 2013. accessed October 23, 2013
  30. State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  31. 31.0 31.1 31.2 31.3 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," June 27, 2013
  32. Cite error: Invalid <ref> tag; no text was provided for refs named report
  33. Open States, "SB 813," accessed October 24, 2013
  34. Open States, "SB 335," accessed October 24, 2013
  35. Maryland Legislature, "House Bill 72," accessed October 24, 2013
  36. Maryland Legislature, "House Bill 780," accessed October 24, 2013
  37. Maryland Legislature, "House Bill 661," accessed October 24, 2013
  38. Maryland State Retirement and Pension System, "Home page," accessed November 27, 2013
  39. Maryland State Retirement and Pension System, "Investments," accessed November 27, 2013
  40. State Integrity Investigation, "Maryland State Pension Fund Management," accessed November 27, 2013