The Maryland General Assembly passed a bill that will require the state to pay the actuarially required contribution to the $40.2 billion Maryland State Retirement & Pension System, Annapolis.
The bill, which passed last week and is being sent to the governor, would be phased in over the next 10 years to replace the current “corridor method” of funding the pension system.
Under the corridor method that was adopted in 2002, the state can contribute the same amount as prior years as long as the funded status remained between 90% and 110%. If the funded status were to dip under 90%, the contribution rate would be set at the rate in effect for the previous year plus 20% of the difference between the ARC and the previous year's rate.
The bill also eliminates a tiered amortization period and replaces it with a closed, 25-year amortization.
"The Legislature has taken a very important step in eliminating a funding method that has contributed to an underfunding of the system," Nancy K. Kopp, state treasurer and chair of the pension system board of trustees, said in a statement. “The pension reforms that the General Assembly enacted two years ago are on course to lead us to our goal of a fully funded system, and this additional reform of the state funding policy will help sustain it in the long term."
The bill would take effect July 1, which means the June 30 valuation will be used to calculate the fiscal year 2015 contribution. Under the bill, the state would contribute about $19 million less in fiscal year 2015. Starting in fiscal year 2024, the new bill would save the state $450 million once the corridor method is completely phased out. The pension system is expected to be 80% funded by 2025, said spokesman Michael Golden, in an e-mail.
The funded status of the six pension funds in the system was a combined 64.4% as of June 30. Only the $329 million judges' pension fund was more than 70% funded, at 78.4%.