ANNAPOLIS, Md. (AP) -- Maryland lawmakers must decide if boosting state employees' pensions is worth changing the underlying investment policies of the retirement system.
Under a proposed reform to state workers' benefits, the system would have to raise its assumed rate of return, and change how the assets are valued.
The 115,000 government workers and teachers who belong to the $26 billion system would see pension benefits grow to 45% of their final salary from about 25%.
At a briefing last month, members of the Senate Budget and Taxation and House Appropriations committees offered pointed comments about the proposal's financial risks. Some lawmakers are questioning whether they should improve benefits and expect more lucrative investment returns to pay for the changes.
Under the plan, workers would begin chipping in 3% of their salaries to help pay for their pensions. This would raise $800 million during the next 30 years -- the time span actuaries use to calculate pension costs.
The extra cost to the state of $2.4 billion would be covered by changes in estimates about how much investments would earn and how they should be valued.
Under the proposal, investments would be expected to earn 7 3/4% each year rather than the current 71/2%. The pension board also would change the way it values its investments. The value is now below full market value, to anticipate problems in the stock market. Raising the value to closer to market value would generate nearly $1.2 billion during the next 30 years.
An independent actuary the state hired, The Segal Co., said the change in investment return is reasonable because three out of four states already expect 8% or more. But the company said increasing the asset value "would be a move out of the mainstream."
"It's a bigger risk," Mr. Levy said.
