MD State Pension System — An Insider Perspective

Getting all the facts straight in the Maryland’s pension fund arena continues to be a work in progress.

Dean Kenderdine, executive director of MRPS, sent along this comment to clarify remarks published here by Hagerstown Del. Andy Serafini about the pension fund’s move to shrink it’s projected rate of return on future investments.SRPS_Logo

Here’s what Kenderdine wrote:

“Mr. Rascovar:

“I have read with interest your writings on the Maryland Retirement and Pension System, as well as the responses it has elicited from state officials, past and present, who have been directly involved with the public policy behind the system.  The recent post from Delegate Andrew Serafini prompts me to offer one important correction to your readers.

“In discussing the system’s assumed annual rate of return, Delegate Serafini cites recent actions by Moody’s in [its] analysis of states for their credit ratings.  The delegate is correct when he states that the system’s board of trustees recently lowered the system’s assumed rate of return from 7.75% to 7.55%.  This is one of several economic and demographic assumptions that go into determining the annual contribution required of the system’s employers, including the state.  It is the rate used for funding purposes.

“The board took this action after extended and careful deliberation, with the benefit of advice from the system’s investment consultant and actuary who, in addition, gathered detailed input from a number of economists and investment professionals.  Like other public pension plans, the Maryland system, its expert advisors and the board of trustees have taken a long-horizon look to the future in making the investment return assumption.  The system is indeed, a long- term investor whose returns over the past 25 years, inclusive of the recent Great Recession, have been 7.85%.

“Delegate Serafini states that ‘municipal analysts are also saying [Maryland’s] investment assumptions need to be further reduced – lower than what the retirement board recently did from 7.75% to 7.55%.’  It should be made clear that the rating agencies have not expressed the same opinion.  None of the three rating agencies has indicated to Treasurer Nancy K. Kopp, Maryland’s lead in the oversight of state debt, that the state’s assumed rate of return should be lowered.

“Moody’s has recently adopted a new practice where they measure all public pension plans’ liabilities using a common assumed rate of return, which they arbitrarily set at approximately 5.5%.  According to Moody’s, in [its] June 27, 2013 report entitled ‘Adjusted Pension Liability Medians for U.S. States,’  [this has been done] to ‘achieve greater comparability and transparency in our credit analysis…’ of all states.  It is Moody’s effort to achieve comparability in the accounting of pension liabilities.  In its April 17, 2013 report entitled Adjustments to US State and Local Government Reported Pension Data, Moody’s states that “[o]ur adjustments are not intended as a guide, standard or requirement for state or local governments to report or fund their obligations.”  Moody’s goes on to say “We recognize the value of the actuarial approach for governments, who are ultimately concerned with budgetary planning.”

“Moody’s reviewed the status of the State’s pension systems when reviewing the State’s creditworthiness for its last bond sale in July 2013.   Maryland retained its Aaa rating from Moody’s. The Moody’s report is available at