WASHINGTON – The Maryland State Retirement and Pension System is assuring state employees that their investments are safe, even after the system lost more than $830 million in July and August.
The loss leaves the fund’s total value at $35.8 billion as of Aug. 31. It comes on the heels of a $2.8 billion loss during the 2008 fiscal year ending June 30, the fund’s first annual loss since 2002.
The pension system’s financial difficulties are indicative of the economy’s struggles as a whole. But they will not affect the fund’s ability to pay retirement benefits to state employees, said executive director R. Dean Kenderdine.
“We have the assets available to us today to meet benefit obligations well, well into the future,” he said. “The obligation of the state to its present employees is very clear.”
The retirement and pension system will weather the current storm, Kenderdine said. He pointed to the early 2000s recession as an example of the fund’s resilience. The fund lost $6.4 billion in 2001 and 2002 combined, but rebounded with five consecutive years of growth.
“There are market downturns like the one we’re experiencing presently,” Kenderdine said. “Our horizon is well into the future.”
State employees are similarly optimistic. As alarming as the current economic climate may be, the general belief is that the system will correct itself, said Sue Esty, assistant director of the American Federation of State, County and Municipal Employees Council 92 in Baltimore.
“Over the last 20 years, we’ve gone up and down considerably,” she said. “But over the long term, the investments pan out.”
The state retirement fund owes much of its stability to its use of a defined benefit system, Esty said. The system automatically pays benefits to all retirees, as opposed to a defined contribution system, where employees select their own investment plan and assume the risk associated with it.
The Maryland Teachers & State Employees Supplemental Retirement Plans use a defined contribution system. State workers can opt in, choose a mutual fund and invest.
At the moment, those who invest through the supplemental plan are likely losing money. But they should gain it back and earn a return if they stay patient, said the plan’s executive director Michael Halpin.
“Unfortunately, a lot of the stories are unnecessarily alarming,” he said. “Ten cents out of my dollar might be lost. The other 90 cents that is not lost might make another 90 cents over the next five years.”
But state employees who plan to retire soon don’t have five years to wait for a recovery. The conventional wisdom is that investors should move well over half of their money out of the stock market as they approach retirement, said University of Maryland associate business professor Russell Wermers.
“If your retirement date is within five years or 10 years,” he said, “you should be pretty much out of the stock market.”
Mutual funds are relatively safe in the long run because of the sheer number of companies they invest in, sometimes as many as 250, Halpin said. He said struggling mutual funds are currently a good long-term investment. Wermers agreed.
“What better time to buy than when prices are one-half or less than what they were a year ago?” he said. “It’s not guaranteed, but it seems to me like a pretty good time to invest.”