Maryland State Retirement & Pension System, Baltimore, retained its 7.75% assumed rate of return on investments at a board meeting Tuesday.
The board instead voted 11-1 to change demographic assumptions affecting the $36.3 billion pension fund.
Board members had considered dropping the rate to 7.5%.
Brian Murphy with actuarial consultant Gabriel Roeder Smith told board members that the demographic changes include factoring in the cost of promotions and merit raises, and changes in retirement, benefit withdrawal and mortality rates. Both current and alternate assumptions were within an acceptable range, but the changes had “a higher probability of being met than present assumptions,” Mr. Murphy told the board.
The decision to change demographic assumptions will require an additional $25 million in employer contributions next fiscal year and $311 million total over five years, but less than the $28 million and $372 million, respectively, that the proposed rate drop was projected to cost.
“One of our primary concerns has been the rate of return,” Nancy Kopp, state treasurer and board chairwoman, said before the vote. Ms. Kopp noted that with further pension funding changes on the table as the state prepares its fiscal 2014 budget, the board may reconsider the rate issue later.
“We did feel that we had to adopt the demographics despite the cost; there was really not a lot of debate,” Ms. Kopp said in an e-mail. A lower rate and inflation projection “might be the next step” as the board reviews its options annually.