Pension Funding Proposal Presentation to the Senate Budget and Taxation Committee and House Appropriations Committee 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

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

Corridor vs. Full Actuarial Funding Fiscal 2003-2016 Source: State Retirement Agency, Department of Legislative Services

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

Role of Supplemental Contributions Fiscal 2004-2016 Source: Department of Legislative Services

Effect of Paying Full Actuarial Contribution Fiscal 2016-2020 ($ in Millions) 2016 2017 2018 2019 2020 Corridor + Supplemental $1,839 $1,942 $2,028 $2,068 $2,041 Actuarial Contribution 1,768 1,763 1,795 1,782 Total Savings $71 $179 $233 $286 $258 General Fund Savings 60 151 196 241 217 Source: State Retirement Agency, Department of Legislative Services