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State pension returns are on target

Pension and WelfareInterior Policy

In her recent column, Marta Mossburg opines that the state pension system's assumed rate of return of 7.75 percent is unrealistic, pointing to last year's earnings of 0.36 percent as proof ("On state pensions, 'Everyone else is doing it' is no excuse," Feb. 13). Interestingly, she failed to mention the system's 20 percent earnings in fiscal year 2011 and 14 percent in fiscal 2010. That data didn't fit her narrative.

Ms. Mossburg and other critics of the pension system seem to have difficulty acknowledging the reality that the assumed rate of return is based on a long-term horizon. Since the system is charged with pre-funding benefits during the working life of public employees, the board appropriately looks at the rate of return as an average over that period, which is typically 25 years or more.

When determining the rate of return, the board and its investment advisors do not expect the system to match it year after year. In some years, the earnings far exceed the assumed rate, and in other years we fall short, as evidenced by the figures I mentioned above. However, when averaged over the working life of the typical employee, the board has done well in setting the rate. The latest data (as of January 31, 2013) shows that the system has earned 7.97 percent on average over the last 25 years and 7.69 percent over the last 10 years, one of the worst periods in history. The board will review this data later this year during its annual actuarial review.

As I stated in my column to state retirees — which Ms. Mossburg cites, but unfortunately mischaracterizes — we take the long view. Benefits are paid out by the system over the long-term, requiring a long-term investment horizon and funding strategy. Read it here and see how it squares with Ms. Mossburg's portrayal.

Nancy K. Kopp, Annapolis

The writer is Maryland State Treasurer and chairs the board of trustees of the State Retirement and Pension System.

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