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Home My WebLink AboutMaryland State Retirement and Pension System - Public Financial ReportPopular Annual Financial Report Maryland State Retirement and Pension System A Pension Trust Fund for the State of Maryland For the Year Ended June 30, 2021 2021 Government Finance Officers Association Award for Outstanding Achievement in Popular Annual Financial Reporting Presented to Maryland State Retirement and Pension System Maryland For its Annual Financial Report for the Fiscal Year Ended June 30, 2020 Executive Director/CEO Mission Statement The Board of Trustees of the Maryland State Retirement and Pension System (System) is charged with the fiduciary responsibility for administering the survivor, disability and retirement benefits of the System’s participants and to ensure that sufficient assets are available to fund the benefits when due. To accomplish this mission the System has established the following key goals: l To prudently invest System assets in a well diversified manner to optimize long-term returns, while controlling risk though excellence in execution of the investment objectives and strategies of the System. l To effectively communicate with all retirement plan participants to inform them about the benefits provided by the System, and to educate them about planning and preparing for all aspects of their future retirement. l To accurately and timely pay retirement allowances provided by State pension law to the System’s retirees and their beneficiaries. l To implement an automated, comprehensive and integrated pension administration and electronic document management system. l To efficiently collect the required employer and member contributions necessary to fund the System. I t is my pleasure to present to you the fifth edition of the Popular Annual Finan- cial Report (PAFR) for the Maryland State Retirement and Pension System (System). In the following pages, you will find a condensed version of the lengthier—and more technical—Annual Comprehensive Financial Report, which is published each year and can be found on our website at sra.maryland.gov. The PAFR presents the operating results for the fiscal year that ended June 30, 2021 in an easy-to-digest format for anyone who wants to quickly review the status of the retirement fund. Fiscal year earnings in 2021 were extraordinary: The System’s portfolio returned a record-setting 26.7%, net of fees, on investments for the fiscal year that ended June 30, 2021. It was the System’s best in 35 years. The fiscal year earnings far exceeded the System’s 7.40% assumed actuarial return rate and surpassed its policy bench- mark of 24.41 by 230 basis points. The fund’s performance raised the System’s as- sets to $67.9 billion, an increase of $13.3 billion over the prior fiscal year. The performance of the fund over 10-year, 5-year, 3-year and 1-year periods are all above the 7.4% return assump- tion at 8.2%, 10.7%, 11.8% and 26.7%, respectively. The attractive investment opportunities provided by the pandemic and subsequent monetary and fiscal policy re- sponses are apparent in the rearview mirror but were not always clear in real time. Fortunately, working with the Board of Trustees and the investment staff, the System was able to fully participate in the very strong returns avail- able in most markets. Importantly, the System maintained its moderate risk posture and portfolio implementation, re- sulting in impressive risk-adjusted returns as well. The MSRPS is responsible for properly administering retirement, disability, and death benefits for state employees, teachers, law enforcement officers, legislators, judges, as well as local government employees and correctional per- sonnel whose employers have elected to participate in the System. The System provides monthly allowances to more than 169,000 retirees and beneficiaries and is an essential element of the future financial security for over 194,000 active participating members. Participants and beneficiaries of the plan can be assured that the Board of Trustees is discharging its fiduciary re- sponsibilities in a prudent and thoughtful manner. In carrying out its investment responsibilities, the Board’s focus is on maximizing returns while minimizing risk. Therefore, the System’s asset allocation, set by the Board is balanced and diversified, designed to navigate a middle path through periods of highs and lows in the market, putting it on a steady upward trajectory to full funding of the System. It is important to note that the pension reforms enacted by the Maryland General Assembly in 2011 continue to dis- play positive results on the System and, in fact, continue to exceed earlier projections. Required employer contribu- tions for the coming fiscal year of 2023 are projected to be 17.55% of payroll, significantly lower than the 20.03% predicted at the time of the 2011 reforms. As of June 30, 2021, the System’s funded ratio is 76.2%, more than the 75.1% predicted at the same time, and higher than 73.6% reported last year. The System remains on track to be 80% funded by 2026; 85% funded by 2030; and 100% funded by 2039. This Popular Annual Financial Report is derived from information contained in the System’s 2021 Annual Compre- hensive Financial Report, but does not contain detailed financial information by plan, nor is it presented in a manner to conform to Generally Accepted Accounting Principles (GAAP). For a complete set of financial definitions in- cluded in this summary report, please refer to the System’s 2021 Annual Comprehensive Financial Report, which is prepared in conformity with GAAP and may be obtained by visiting our website. I hope you will find this publication useful and informative. Thank you for your interest, Martin Noven A Message from our Executive Director Table of Contents Members at a glance..................................................................................1 Teachers Employees Law Enforcement Officers Correctional Officers State Police Judges Legislators Retirees at a glance ...................................................................................3 How benefits are funded Number of retirements by fiscal year Local economic impact of Maryland pensions ...........................................4 Where else do retirees live? Investments................................................................................................5 Portfolio return and benchmarks 2011 Benefit Reform Scorecard Plan net position Changes in plan net position Where are plan assets invested? Assets/Liabilities State Contributions Rate Interested in learning more?......................................................................8 Total membership Active members Benefit recipients Inactive members 411,730 169,368 48,051 194,311 Members at a glance Employees Retirement System Pension System Total Membership Active vested 4,658 34,958 Active non-vested 3,310 36,928 Vested former members 782 23,143 Retired members 18,832 63,705 Active Members Number 7,968 71,886 Average age 45.7 48.8 Average years of service 13.0 11.6 Average annual salary $54,756 $59,060 Retirees and Beneficiaries Number 18,832 63,705 Average age 73.5 71.3 Average monthly benefit $2,192 $1,405 Teachers Retirement System Pension System Total Membership Active vested 199 59,953 Active non-vested 0 49,806 Vested former members 101 23,632 Retired members 22,790 58,725 Active Members Number 199 109,759 Average age 70.4 45.1 Average years of service 44.8 12.1 Average annual salary $109,510 $69,854 Retirees and Beneficiaries Number 22,790 58,725 Average age 79.3 71.9 Average monthly benefit $3,553 $2,073 1 State Police Total Membership Active vested 774 Active non-vested 579 Vested former members 86 Retired members 2,559 Active Members Number 1,353 Average age 36.5 Average years of service 12.3 Average annual salary $87,989 Retirees and Beneficiaries Number 2,559 Average age 65.2 Average monthly benefit $4,447 Judges Total Membership Active vested 204 Active non-vested 111 Vested former members 7 Retired members 442 Active Members Number 315 Average age 57.8 Average years of service 8.3 Average annual salary $165,312 Retirees and Beneficiaries Number 442 Average age 77.8 Average monthly benefit $7,363 Legislators Total Membership Active vested 69 Active non-vested 119 Vested former members 42 Retired members 313 Active Members Number 188 Average age 54.0 Average years of service 8.5 Average annual salary $50,490 Retirees and Beneficiaries Number 313 Average age 76.2 Average monthly benefit $1,539 Correctional Officers Total Membership Active vested 4,475 Active non-vested 3,259 Vested former members 653 Retired members 6,514 Active Members Number 7,734 Average age 44.5 Average years of service 12.2 Average annual salary $55,035 Retirees and Beneficiaries Number 6,514 Average age 62.8 Average monthly benefit $2,032 Law Enforcement Officers Total Membership Active vested 1,357 Active non-vested 1,340 Vested former members 293 Retired members 2,264 Active Members Number 2,697 Average age 41.2 Average years of service 10.9 Average annual salary $73,956 Retirees and Beneficiaries Number 2,264 Average age 62.2 Average monthly benefit $3,113 2 How benefits are funded Retirement benefits are funded primarily by investment returns with the remainder coming from a combina- tion of member and employer contributions. Dollar amounts are shown in millions. More than 87 cents of every $1 accrued for MSRPS retirees last year came from investment income and member contributions. 7,698 8,459 8,243 7,354 8,105 7,484 7,150 6,813 0 2,500 5,000 7,500 10,000 2014 2015 2016 2017 2018 2019 2020 2021 The average MSRPS retiree: Retirees at a glance l Had accrued 22.8 years of service at retirement l Earned an average final salary before retirement of $53,112 l Retired at age 60.9 l Is presently 72.6 years old l Lives in Maryland l Receives $25,175 each year in MSRPS benefits Number of retirements by fiscal year $0.866 $2.204 $14.316 $0 $5 $10 $15 Members Employers Net Investment Income 5.0%12.7% 82.3% Fiscal year 2021 funding by sources 3 More than $2.67 billion in annual pension payments stay in Maryland. M = millions Where else do retirees live?Maryland ..............74.7% Florida ....................4.7% Pennsylvania..........3.6% Virginia ...................2.6% Delaware ................2.4% North Carolina ........2.2% South Carolina .......1.4% West Virginia ..........1.4% No other state is home to more than 1% of our payees. Data as of August 2021. Number of Total Pension County/City Retirees Dollars Allegany 3,431 $79.0M Anne Arundel 13,329 $350.8M Baltimore City 11,560 $273.5M Baltimore County 21,643 $598.5M Calvert 2,299 $63.6M Caroline 1,127 $26.7M Carroll 5,241 $138.3M Cecil 1,911 $45.2M Charles 2,243 $57.1M Dorchester 1,449 $33.5M Frederick 5,131 $142.6M Garrett 1,240 $28.9M Harford 7,103 $189.3M Howard 6,529 $196.5M Kent 725 $18.0M Montgomery 9,298 $300.8M Prince George's 10,604 $253.7M Queen Anne's 1,946 $52.6M Saint Mary's 2,075 $49.6M Number of Total Pension County/City Retirees Dollars Somerset 1,234 $27.0M Talbot 1,412 $35.5M Washington 4,592 $109.1M Wicomico 3,423 $84.9M Worcester 2,164 $52.5M Garrett Allegany Washington Frederick Carroll Montgomery Howard Baltimore Baltimore City Harford Prince George’s Charles Calvert St. Mary’s Caroline Queen Anne’s Kent Talbot Dorchester Wicomico Somerset Worcester Anne Arundel Cecil Local economic impact of Maryland pensions 4 2011 Benefit Reform Scorecard 5.58% 7.55% 10.20% 11.19% 24.43% 5.88% 8.40% 10.90% 12.00% 26.90% 0% 5% 10% 15% 20% 25% 30% 20 Years 10 Years 5 Years 3 Years 1 Years Portfolio Return and Benchmarks Total Plan Total Plan Policy Index F iscal 2021 was an ex- traordinary year in which the Sys- tem earned 26.7% on invest- ments, far sur- passing its 7.40% assumed actuarial return rate and exceed- ing the policy benchmark of 24.41% by 230 basis points. (all based on end of fiscal year, June 30) Investments Reforms enacted by the Maryland General Assembly in 2011 and in subsequent years continue to show positive results for the System and, in fact, continue to exceed earlier projections (see chart below). The System is on track to be 80% funded by 2026, 85% funded by 2030 and 100% funded by 2039. The 2010 valuation was the basis for the original estimates and projections related to potential effects of the 2011 reforms. Certain changes since implementation of reforms affect the comparability of the figures: 1. Systems are now receiving Actuari- ally Determined Contributions based on 25-year closed amortization of un- funded actuarial accrued liability (UAAL) ending in FY 2039. Elimination of the corridor funding method resulted in a large contribution increase for the Employees’ Combined System (ECS). The change was very small for the Teachers’ Combined System (TCS). 2. The General Assembly lowered reinvested savings to $75 million from the original $300 million in two steps beginning in FY 2014. 3. Both demographic and economic assumptions have changed since 2010 acting to increase contributions and decrease funded ratios. 4. There was an overall favorable ex- perience since 2010 (except ECS) which decreased actuarial contribution rates and increased funded ratios. Fiscal Year 2023 Contribution Rates No Reinvestment (% of Pay) ECS (State)24.13%19.92%20.68% TCS 22.39%18.45%14.65% All State Plans 24.13%20.03%17.55% June 30, 2021 Funded Ratio No Reinvestment All State Plans 70.7%70.5%72.7% June 30, 2021 Funded Ratio Reinvestment All State Plans 70.7%75.1%76.2% Projected June 30, 2021 Results on June 30, 2010 Valuation 5 Assets 2021 Increase/ (Decrease)2020 Increase/ (Decrease)2019 Cash and cash equivalents and receivables $3,436,068 $902,619 $2,533,449 $(1,062,842)$3,596,291 Collateral for securities loaned $4,745,195 $603,047 4,142,148 $806,438 3,335,710 Total investments, at fair value $70,580,176 $12,667,037 57,913,139 $2,064,642 55,848,497 Total assets $74,016,244 $13,569,656 60,446,588 $1,001,800 59,444,788 Liabilities Accounts payable and accrued expenses $66,355 $1,790 64,565 $1,162 63,403 Investment commitments payable $1,600,194 $(53,644)1,653,838 $(448,417)2,102,255 Obligation for collateral for loaned securities $4,745,195 $603,047 4,142,148 $806,438 3,335,710 Total liabilities $6,411,744 $551,193 5,860,551 $359,183 5,501,368 Net Position Restricted for Pensions $67,604,500 $13,018,463 $54,586,037 $642,617 53,943,420 Amounts expressed in thousands Plan Net Position Changes in Plan Net Position For the Years Ended June 30, 2021 and 2020 For the Years Ended June 30, 2021 and 2020 Additions 2021 Increase/ (Decrease)2020 Increase/ (Decrease)2019 Employer contributions $1,436,868 $76,954 $1,359,914 $58,360 $1,301,554 Employee contributions $865,738 $15,440 $850,298 $43,007 $807,291 State contributions on be- half of local governments $766,656 $(17,493)$784,149 $32,204 $751,945 Contribution interest -$(207)$207 $(385)$592 Net investment income $14,315,762 $12,449,123 $1,866,639 $(1,421,570)$3,288,209 Total additions $17,385,024 $12,523,817 $4,861,207 $(1,288,384)$6,149,591 Deductions Benefit payments $4,253,047 $144,555 $4,108,492 $182,272 $3,926,220 Refunds $64,773 $(3,979)$68,752 $1,352 $67,400 Administrative expenses $47,741 $6,395 $41,346 $1,562 $39,784 Total deductions $4,366,561 $147,971 $4,218,590 $185,186 $4,033,404 Net increase (decrease) in plan position $13,018,463 $12,375,846 $642,617 $(1,473,570)$2,116,187 Beginning plan net position $54,586,037 $642,617 $53,943,420 $2,116,187 $51,827,233 Ending plan net position restricted for pensions $67,604,500 $13,018,463 $54,586,037 $642,617 $53,943,420 Amounts expressed in thousands 6 GROWTH/EQUITY includes U.S. Equity, International Developed Markets Equity, International Emerging Markets Equity, and Pri- vate Equity. RATE SENSITIVE includes Long-Term Government Bonds, Se- curitized & Corporate Bonds, and Inflation-Linked Bonds. CREDIT includes High Yield Bonds & Bank Loans and Emerging Markets Debt. REAL ASSETS includes Real Estate, Commodities, Natural Re- sources and Infrastructure ABSOLUTE RETURN includes those investments whose per- formance is expected to deliver absolute returns in any market conditions. The System’s program may include strategies such as hedge fund of funds, multi-strategy, global tactical asset allo- Where are plan assets invested? Growth/Equity 52.6% Rate Sensitive 15.9% Credit 9.2% Real Assets 11.2% Absolute Return 8.7% Multi Asset 1.0% Cash 1.4%Asset Allocation Target June 30, 2021 Growth Equity 50% (+/-7%)52.6% Rate Sensitive 19% (+/-5%)15.9% Credit 9% (+/-4%) 9.2% Real Assets 14% (+/-4%)11.2% Absolute Return 8% (+/-4%)8.7% Multi Asset 0% (0%)1.0% Cash 0%1.4% cation, event driven, relative value, macro, insurance and equity hedged. MULTI ASSET includes a combination of different strategies that do not fall within the description of only one asset class and are expected to have performance characteristics simi- lar to the plan. 0% 5% 10% 15% 20% 25% Pe r c e n t o f P a y Budgeted Rate*Actuarially Calculated Rate* Valuation Year $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 Bi l l i o n s Actuarial Accrued Liability Actuarial Value of Assets Valuation Year St a t e Co n t r i b u t i o n s R a t e As s e t s / L i a b i l i t i e s * Excludes reinvested savings in valuation years 2010. 2010 rates are prior to the 2011 General Assembly reforms. 7 The Maryland State Retirement Agency provides several resources to keep mem- bers, retirees and other stakeholders informed about the financial management of the State’s $67.9 billion pension fund. Interested in learning more? l The full 174-page Annual Comprehensive Financial Report, along with reports for prior years, are available on the Maryland State Retirement Agency website at sra.maryland.gov. From the homepage, simply click on Investments & Fi- nancials, then Annual Financial Reports. This webpage also offers links to the Agency business plan, actuarial valuation reports and the Board of Trustees’ open meeting minutes. You may review the Agency’s investment policy manual and download quarterly investment perform- ance updates. l A dedicated email address is available for your inquiries about the Agency’s in- vestment program. Submit your questions to invest-info@sra.state.md.us. Note: Our investment staff cannot provide advice about your personal investment portfolio. l If you prefer corresponding by mail, address your letter to the Maryland State Retirement Agency, 120 East Baltimore Street, Baltimore, Maryland 21202-6700 l The Retirement Agency may be reached by telephone at 410-625-5555 or toll- free 1-800-492-5909. 8