By Adam Pagnucco.
Suppose the county council were to pass legislation giving unelected boards virtually unfettered power to add tens of millions of dollars in extra costs to the county budget. That would never happen, right? They would never be so irresponsible. Right?
Don’t bet on it!
Bill 28-24 shifts important powers over the county’s multi-billion dollar pension and retiree healthcare funds from the executive branch to the appointed boards that oversee them. To understand what it does, let’s review how defined benefit pension funds operate. These funds originate from employer promises of specific, formula-determined pension benefits to eligible employees when they retire. To finance those benefits, employers set up funds to accumulate contributions (often from employees as well as employers) and realize returns on investments. These funds hire actuaries who make assumptions regarding investment returns, mortality rates, turnover and related factors that drive calculations of required contributions. Funds with assets equaling their estimated liabilities (primarily projected pension benefits) are healthy enough to pay the benefits and keep the employer’s promises to retirees. Funds with assets falling far short of their obligations require more money, and in extreme cases, private sector funds can be taken over by the federal government’s Pension Benefit Guaranty Corporation (PBGC).
And so the selection of an actuary is one of the most critical decisions administrators of pension funds (and retiree healthcare funds, which operate similarly) can make. Actuaries who assume lower investment returns, lower employee turnover rates and lower mortality rates generate needs for higher contributions to keep the funds healthy. The inverse is also true – assuming high returns, high mortality rates and high turnover minimizes contributions. For big pension and retiree health funds like Montgomery County’s (which together hold more than $8 billion in assets), a tiny change in these assumptions can affect millions of dollars in required contributions. These numbers are not hypothetical – consider that taxpayers paid $81 million into the county’s pension fund in FY25. (That’s up from $65 million the year before.)
In Montgomery County, the county government’s chief administrative officer (currently Rich Madaleno) selects the actuary and, after consulting with the actuary and the two appointed boards that oversee the pension and retiree health funds, determines the assumptions on investment returns, mortality, turnover and other factors that lead to calculations of required contributions to the funds. That system has worked well for the county for many years. During the ten years from FY16 through FY25, assets in the county’s pension fund could support between 87% and 116% of the county’s pension liabilities, with a funding ratio of 95% last year. That’s outstanding. Compare that to the state government, which had funding ratios ranging from 66-82% over the same period, or to average funding ratios for state and local governments which are usually 70-80%.
Bill 28-24, sponsored by Council Members Andrew Friedson, Sidney Katz and Kate Stewart and co-sponsored by Council Member Dawn Luedtke, scraps what has been a high-performing structure and shifts responsibility for picking the actuary and setting the actuarial assumptions from the chief administrative officer to the two appointed boards overseeing the pension and retiree healthcare funds. You may remember that these are the same boards who voted to waste millions of dollars on unnecessary luxury private office space that is half empty. (I am still waiting for elected officials to express outrage over this.)
Now here is the crazy part: the boards themselves are not requesting this authority. In December, they signed memorandums of understanding with the chief administrative officer agreeing to collaborate on picking actuaries and setting actuarial assumptions. With pension funding ratios well above average and agreements on collaboration in place, what is there to fix?
The only parties pushing to shift control over the actuary from the county government to the boards are the three county employee unions who sit on the boards. They depict the shift as vital to the integrity of the pension system and have asked their members to email the council in favor of the bill.
What could happen if it passes? Sara Harris, president of the Montgomery County Retired Employees’ Association, laid out this scenario in her testimony opposing the bill.
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Would the County be obligated to pay the additional cost of whatever change in the investment return assumption the boards decide to make? For example, one option for the ERS [Employees Retirement System] is to lower the current investment return assumption, 7.5%, to 7.25% or less. (The ERS’s annualized returns over time have exceeded 7.5%. In October 2025 the ERS’ general investment consultant re-endorsed the 7.5% assumption.)
A shift to 7.25% would require an estimated $14 million more in the County contribution to the ERS. (The FY26 County contribution is already $90.7 million, up from $64.9 million in FY24 and $81.0 million in FY25, due chiefly to pension benefit improvements.) Setting even lower investment return assumptions of 7.0% or 6.8%, as one trustee suggested, would require an even larger additional County contribution. Wouldn’t Bill 28-24 require the County to pay such additional costs whether or not they are needed?
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That’s the play: remove the county government from setting actuarial assumptions on these multi-billion dollar funds, adjust the return assumption down, require more taxpayer payments into the funds and – eventually – negotiate higher benefits because the funds have more money. The county never shorts its actuarially required contributions to the pension fund – not even during the Great Recession – and so the likely net impact is to create an uncontrolled liability for taxpayers with little if any way to stop it.
I think the unions would be justified in seeking this change if one of two things were happening. First, if the pension fund was in trouble, a structural change might be necessary to improve its funding. But that’s absolutely not the case now since the county had a 95% pension funding ratio last year, which would be the envy of the vast majority of public pension funds. Second, if county benefits were inadequate, the unions would be justified in seeking better ones. However, between 2022 and August 2024, the council passed no fewer than ten different bills enhancing benefits. (There may have been more since then.) That’s one reason why taxpayer payments into the pension fund are now rising quickly as the retiree association president noted above.
And so the concept of this bill is that the county should abdicate part of its oversight over billions of dollars in benefit fund money and expose taxpayers to untold future liabilities. It’s the last thing we need as the county’s economy is slowing and another tax hike appears inevitable.
Our pension system is not broken. Let’s not try to “fix” it.