Maryland Pension System’s Assumed Rate of Return Reduced Again

The Board of Trustees of the Maryland State Retirement and Pension System (MSRPS) voted to reduce the System’s actuarial assumed rate of return on its investments from 7.45% to 7.40%.

The System’s lower rate will be effective beginning in fiscal year 2021.

“The Board’s prudent action is in recognition of ongoing changes in the financial markets, while continuing to achieve the investment returns required for the system over the long term,” says State Treasurer Nancy K. Kopp, chair of the MSRPS Board of Trustees. “Our goal is to continue to improve the strength of our retirement system and to keep our promise of a secure retirement that our members have worked so hard to earn in their years of service to the public.”

The Board said it based its decision on an analysis by its actuary.

Among the 127 plans the National Association of State Retirement Administrators (NASRA) measured in 2017, nearly three-fourths reduced their investment return assumption since fiscal year 2010. NASRA found 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.

Researchers from the Center for Retirement Research at Boston College found a decline in assumed rates of return due to lower assumed inflation combined with a change in asset allocations, resulting in a higher expected real return, has increased long-term costs for public pensions. The researchers say the decline in assumed rates of return is due to lower assumed inflation, so the increase in costs is much smaller than if the decline in the assumed return was due to a lower assumed real return.

The Board of Trustees of the MSRPS reduced the system’s assumed rate of return in 2013 to 7.55% from 7.75%. In 2017, it again reduced it from 7.55% to 7.45%.