Pension Funding Proposal
Presentation to the
Senate Budget and Taxation Committee and
House Appropriations Committee
Department of Legislative Services
Office of Policy Analysis
Annapolis, Maryland
February 2015
Origins of Pension Funding
Components
• Corridor funding method enacted in 2002 in
response to Governor Parris N. Glendening
underfunding required pension contribution
• Supplemental contribution (reinvested savings)
enacted in 2011 as part of comprehensive
pension reform
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Corridor Funding
• Froze employer pension contribution rates for
Teachers’ Combined
Systems
(TCS)
and
Employees’ Combined Systems (ECS) at fiscal
2002 levels as long as a system was at least 90%
funded but not more than 110% funded
• When systems dropped below 90% funding, set
TCS/ECS contribution rates at the previous year’s
rate plus 20% of the difference between that rate
and the current year’s full actuarial rate
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Corridor vs. Full Actuarial
Funding
Fiscal 2003-2016
$2,500,000,000
$2,000,000,000
$1,500,000,000
$1,000,000,000
$500,000,000
$0
2003
2004
2005
2006
2007
2008
2009
Full Payment
2010
2011
2012
Corridor Payment
Source: State Retirement Agency, Department of Legislative Services
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2013
2014
2015
2016
Supplemental Contribution
• Benefit Sustainability Commission considered
repealing the corridor method, but budgetary
conditions did not support that
• Commission recommended reinvesting a portion of
the savings generated by pension reform to begin
closing the corridor funding gap
• $300 million was recommended (phased in over
3 years) based on projection that it would enable
funding level to reach 80% in 10 years
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Role of Supplemental
Contributions
Fiscal 2004-2016
$700,000,000
$600,000,000
$500,000,000
$400,000,000
$300,000,000
$200,000,000
$100,000,000
$0
2004
2005
2006
2007
Corridor Gap
2008
2009
2010
Original Supplemental
Source: Department of Legislative Services
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2011
2012
2013
2014
2015
Actual Supplemental
2016
Effect of Paying Full Actuarial
Contribution
Fiscal 2016-2020
($ in Millions)
Corridor + Supplemental
Actuarial Contribution
Total Savings
General Fund Savings
2016
2017
2018
2019
2020
$1,839
$1,942
$2,028
$2,068
$2,041
1,768
1,763
1,795
1,782
1,782
$71
$179
$233
$286
$258
60
151
196
241
217
Source: State Retirement Agency, Department of Legislative Services
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