Administration July 31, 2017

Maryland Pension System Further Reduces Return Assumption

State Treasurer Nancy K. Kopp says, “Recognizing that both the inflation experience and expectations for future inflation remain lower than the rate currently assumed, the Board felt it reasonable to reduce the expected return accordingly.”
Reported by

The Board of Trustees of the Maryland State Retirement and Pension System (MSRPS) has voted to reduce incrementally the system’s actuarial assumed rate of return on its investments over the next two years from 7.55% to 7.45%.

The Board will reevaluate the rate in two years to determine if additional reductions will be necessary.

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“The action taken by the Board is part of its overall strategy to increase the probability of achieving investment returns required to improve the health of the retirement System and meet its obligations to its members,” says State Treasurer Nancy K. Kopp, chair of the MSRPS Board of Trustees. “Recognizing that both the inflation experience and expectations for future inflation remain lower than the rate currently assumed, the Board felt it reasonable to reduce the expected return accordingly.”

Since 2008, at least 45 public pension plans have reduced their return assumptions, including the two largest public pension systems in the nation.

The National Association of State Retirement Administrators (NASRA) warns that public plans that reduce their return assumption in the face of diminished near-term projections will experience an immediate increase in unfunded liabilities and required costs. 

To develop its expectations for inflation, the MSRPS Board considered market pricing for inflation protected bonds, inflation projections provided by a range of investment consultants and the most recent forecasts of the Board of Trustees for the Social Security Administration insurance trust funds.

Before making this change, the Board revised its asset allocation policy to enhance the expected return of the system’s assets. Further, it considered the ongoing work of the system’s Investment Division to improve the net return by reducing fees and other expenses of the system and anticipated program changes to improve cost effectiveness through governance changes.

The Board last reduced the system’s assumed rate of return in 2013, when it decided to decrease it to 7.55% from 7.75% over a period of four years.
Data and Research July 31, 2017

Report Offers Examples of What Works Well for Public Pension Communications

Most pension plans have diverse communication programs that utilize traditional reports and social media.

Reported by

More than half (72%) of public pension plans follow the Government Finance Officers Association (GFOA) reporting standards in producing their comprehensive annual financial reports (CAFRs), according to a study by The Center for State & Local Government Excellence. About half develop a plain language financial report.

Moreover, the study also found several plans are actively engaging with key stakeholders through robust communications and reporting initiatives. Many are leveraging social media and or establishing advisory committees to garner detailed feedback from their stakeholders.

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In its analysis, the firm found “Virtually all the systems in the sample develop an actuarial valuation (annually), an experience study (at an average of every five years), and have a funding policy produced by the system and/or established in state statute.”

All systems in the study’s sample conduct periodic experience studies to measure how closely their plans’ actuarial assumptions match their actual experience through several years. Most plans also have investment policy statements that outline investment risk.

At least forty systems report this on their CAFRs. Meanwhile, at least twenty plans leverage websites to report investment risk and twenty-seven systems detail this during committee meetings. Almost all disclose investment fees.

Plans are also utilizing participant newsletters to provide nontechnical plan financial information. Approximately three-quarters of the sample or sixty-three systems offer content related to the financial condition of their respective system’s plan in their newsletters.

More than 80% of the systems in the sample, or sixty-eight in total, offer board minutes from meetings online and most others make board minutes available upon request. 

While the firm notes that large pension funds like the California State Teachers Retirement Plan (CalSTRS) have the capacity to lead strong communications initiatives, it also says “Even small organizations can occasionally survey members and employers to understand if they are effectively communicating with them. For instance, such surveys can reveal how stakeholders would like to receive their information and the level of retirement readiness of their members.”

The study was conducted with input and assistance from the National Association of State Retirement Administrators. The full report “Public Pension Reporting and Disclosure: The Current State of Practice and Examples of What Works Well” can be found here.

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