State Pension System Investments Soar

Last spring we witnessed a catastrophic fight in the Maryland General Assembly that resulted in draconian cuts to pension benefits for new teachers, as well as an increase in pension contributions for educators all across the state. The justification was that the plan was significantly underfunded. (Set aside for a moment that the increased contributions are not being used to strengthen the pension fund, but rather are being used to reduce the state government's contribution - a slight of hand that is doing nothing to improve the funding status of the plan).

Throughout the debate, MCEA and MSEA urged the General Assembly not to rush to judgement. We argued that long-term changes in plan benefits should not be made based on short-term swings in the investment markets. Yes, the recent recession had battered the value of the pension fund. But the fund needs to be managed for the long haul. It was a mistake 10 years ago when the state decided to reduce its annual funding to the pension plan (through the so-called "corridor funding method") because the plan was at that time fully funded. And it was a mistake last year to gut pension benefits because the funding status had dropped because of the recession.

Turns out we were right. Earlier today a report was released that indicated that the pension fund has gained an eye-popping $6 billion in value in one year: a 20% rate of return - three times the rate assumed by the plan's actuaries.

Given this new information we look forward to hearing from Senate President Mike Miller, who championed the gutting of the state teacher pension system. Educators all across the state will be watching. We don't need an admission that it was a mistake. A committement to reconsider and revoke the gutting of pension benefits in light of the recovery of the plan's investment will suffice.

Tom Israel, MCEA Executive Director.

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Pension system gains $6 billion in investments, 20% rate of return
By Megan Poinski

Thanks to an improving national economy and careful portfolio management, the State Retirement and Pension System blew past its estimates and gained $6 billion in fiscal 2011, a 20% rate of return.

The performance was nearly three times the benchmark rate of return of 7.75%, set by the system’s board of trustees.

Retirement and Pension System spokesman Michael Golden said that the system’s success is through much of its diversification.

“It’s a combination of excellent management provided by our investment division and the turnabout of the economy,” he said.

The system made most of its money through private equity investments, which make up 47% of the entire portfolio, and had a rate of return of nearly 39%. Private equity and real estate also posted high rates of return – 24% for private equity, and 23% for real estate – but the system had invested substantially less in those areas.

There is no estimate of how this helps the pension system’s long-term unfunded liability because investment income is amortized over several years. However, Golden said, coupled with the legislative changes to contributions and future annuities that passed the General Assembly this year, it should make a significant difference. The most recent figures indicate that the pension system has funding for 64% of the pensions it has promised.

$73 million court judgment

The pension system got an unrelated piece of good news earlier this week. The Court of Appeals of Maryland ordered Seattle-based Milliman Inc., a former actuary for the system, to pay the state $73 million that the system missed out on as a result of improper calculations over years.

With this ruling from the state’s highest court, the issue has been definitively settled; there are no federal issues included in the lawsuit.

“This is a significant, important victory for the system and retirees,” Golden said.

Milliman worked with the pension system from 1982 to 2006, and made complex calculations to ensure that employer contributions were sufficient to meet pension needs. During a 2004 self-audit, Milliman discovered that it had forgotten to include benefits paid to surviving spouses of police officers and judges in its calculations for 22 years, impacting the State Police Retirement System, Law Enforcement Officers’ Pension System, and Judges’ Retirement System.

The state started pursuing $73 million from the actuarial firm — $34 million in lost contributions, and $38.8 million in interest that the state would have received. The case went through the Board of Contract Appeals, then the Baltimore City Circuit Court, which awarded the state only $39 million. This week’s ruling is on the final appeal, which was completely in the state’s favor.

Golden said the $73 million will go into the retirement trust fund, which is used to pay out benefits.

Milliman, which stopped working for the state when its contract expired in 2006, issued a written statement saying the company was disappointed in the decision. When Milliman stopped working for Maryland, the state was ahead of its retirement targets.

“The biggest losers in this decision are the citizens of Maryland and the citizens of any large state public retirement plans,” the company’s statement says. “If actuaries are forced to decline such assignments in the future for fear of unreasonable liability exposures, the people who count on these plans may be denied the talent and insights of professional actuaries.”

Firing Line: The Grand Coalition Against Teachers

Many thanks to Joanne Barkin and Dissent Magazine for writing and publishing what may be one of the best articles written about the politics of the current debate over school reform. Firing Line: The Grand Coalition Against Teachers is a comprehensive, well written and easily readable overview of the current debate over teacher evaluations, teacher tenure, high-stakes testing and the political forces driving the discussion. Here's an excerpt from the introduction. Anyone interested in truly understanding the education policy debate today should read this article.

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Firing Line: The Grand Coalition Against Teachers

Joanne Barkan - Dissent Magazine

"In a nation as politically and ideologically riven as ours, it’s remarkable to see so broad an agreement on what ails public schools. It’s the teachers. Democrats from various wings of the party, virtually all Republicans, most think tanks that deal with education, progressive and conservative foundations, a proliferation of nonprofit advocacy organizations, right-wing anti-union groups, hedge fund managers, writers from right leftward, and editorialists in most mainstream media—all concur that teachers, protected by their unions, deserve primary blame for the failure of 15.6 million poor children to excel academically. They also bear much responsibility for the decline of K-12 education overall (about 85 percent of all children attend public schools), to the point that the United States is floundering in the global economy.

In the last few years, attention to the role of public school teachers has escalated into a high-profile, well-financed, and seriously misguided campaign to transform the profession based on this reasoning: if we can place a great teacher in every classroom, the achievement gap between middle-class white students and poor and minority students will close; all students will be prepared to earn a four-year college degree, find a “twenty-first-century job” at a good salary, and help to restore U.S. preeminence in the world economy.

This article will investigate the fix-the-teachers campaign of today’s “education reformers.” It’s not their only project. They also want public schools run with the top-down, data-driven, accountability methods used in private businesses; they aim to replace as many regular public schools as possible with publicly funded, privately managed charter schools; some are trying to expand voucher programs to allow parents to take their per-child public-education funding to private schools. All this will reshape who controls the $540 billion that taxpayers spend on K-12 schools every year. It endangers the democratic nature of public education as well. But nothing affects children more directly in the classroom than what the reform movement is doing to teachers........"

The changing face of America's youth

CNN.com recently ran a story that pointed out that in ten states across the country - including Maryland - white children are now in the minority compared with peers from other racial and ethnic groups. At the same time, we are seeing an erosion of public support for education funding. What do MCPS educators and Montgomery County residents think? Is there a correlation? As the CNN story pointed out "It's in everyone's interest that these diverse young people succeed, because they will serve as a backbone of the national economy and will support social programs older Americans rely upon, such as Social Security." But is public support for public education eroding because our schools' children no longer look like their own?