Over the last two decades, Maryland state workers have built a $650 million retirement nest egg, taking advantage of tax laws and expert investment advice.
But for much of that time, critics say, their savings program has taken advantage of them. It has offered too little individual counseling, a lax sales effort and a fee structure that hits the little guy while giving breaks to those with the biggest accounts.
Maryland's administrative fees appear to be the highest in a 10-state survey conducted by The Sun. For the low-maintenance accounts, the fee is about double what typically might be charged in the private sector.
Over time, those fees can have considerable impact. An interviewer at the Department of Employment and Economic Development, for example, paid about $480 last year -- as much as $200 more than she might have in the marketplace. During her 18 years in the program, her account had grown to more than $60,000. If invested every year, an additional $200 might have amounted to thousands of dollars more.
Last year, 22,000 state workers paid a total of $2.4 million in fees to PEBSCO, short for Public Employees Benefit Services Corp. For this money, the company keeps records of individual accounts, shifts money into new investments when requested and recruits new savers. A separate panel of paid experts, independent of PEBSCO, analyzes and selects investment options.
Legislators, state auditors, program officials and would-be competitors say that participants might be getting a better deal if PEBSCO did not have a "sweetheart" contract and the program were offered for competitive bidding.
The company has a 10-year contract which, if broken, would entitle it to heavy cash penalties, all of which would be paid by the savers.
Meanwhile, as PEBSCO earns millions in fees, critics say, it fails to adequately market the deferred compensation program -- particularly the 401(k) plan, regarded by many investment planners as the most advantageous of the three available programs.
Only 1,000 Maryland workers have signed up for 401(k) which has been extremely popular among public employees in other states.
These criticisms are dismissed by Arthur N. Caple Jr., who heads a state agency providing day-to-day supervision of the program. He says they are sour grapes from "prima donnas" who would love to pick off a successful program like Maryland's so they can avoid the capital risk that PEBSCO took when the program started in 1975. But he agrees that some program fees should be lower and negotiations to that end are under way with PEBSCO.
"There ought to be a way to get the fees down for the little person," he says.
Lapides calls fees 'obscene'
Sen. Julian L. Lapides, D-Baltimore, a cheerleader for the concept of deferred compensation but a critic of the Maryland program, characterizes the fees as "obscene."
And Senate President Thomas V. Mike Miller Jr., D-Prince George's, wants the program to fine a new administrator as soon as possible.
"Without competitive bidding," he says, "it will be difficult if not impossible to demonstrate to the public and to plan participants that these services have been contracted for at the lowest cost consistent with the desired quantity and quality of service," he said in a letter to the program's nine-member board of trustees.
Blank defends PEBSCO
But Howard Blank, PEBSCO's Maryland vice president, says his company provides state of the art service and adequate marketing.
The fees are competitive with those levied by other companies in other states, according to Mark Koogler, a lawyer for Nationwide Insurance Co., which owns PEBSCO.
Mr. Koogler declines to offer comparisons that would support his claim, however, saying that stated fees are not always an accurate reflection of costs because some states help service their programs as an employee benefit. Maryland provides no subsidy.
Mr. Blank says his company offers frequent seminars on deferred compensation programs, but even to state employees who participate in the program deferred compensation remains something of a mystery.
Alice Ike, a 38-year-old lawyer in the state attorney general's office, offers this assessment of the program's pluses and minuses.
"I'm amazed that I have something in deferred compensation," she says. "I can't hold onto a nickel -- and I would be very interested in buying whatever comes along."
At the same time, she is unhappy with the level of service she gets from PEBSCO.
"The people who administer the program have given me no help," she says. She was unclear about her investment options, she said, so she guessed.
"I'd be better off going door to door in my office. I have not found them helpful. I have not found their attitudes helpful. They're not accessible."