Risking Retirement Money

March 10, 1994

As revelations continue about indicted City Comptroller Jacqueline F. McLean's actions in office, trustees of the city pension boards find themselves in a dilemma.

At the urging of Mrs. McLean, they last year approved a controversial $10 million investment in the Chapman Co., a minority-owned Baltimore brokerage firm. Because of legal complications, that deal has not been completed and never may be now that all Mrs. McLean's affairs are being scrutinized for possible skulduggery.

With some $2 billion in its coffers, the Baltimore City municipal employees' retirement system has massive investment clout. Since the collapse of the go-go economy of the 1980s, it has been besieged by promoters of speculative schemes promising better returns than what the fund might expect to get through cautious investment. The pension trustees have been torn between their desire to preserve members' capital and earn a hefty interest on it.

When the Chapman Co. asked the pension trustees to consider investing up to $10 million, the deal sounded good. The fledgling Baltimore firm promised an annual 15 percent return plus the chance for city retirees to advance a social cause by promoting black capitalism. Despite a scathing opinion of the deal by Shapiro & Olander, a law firm with close ties to the Schmoke administration, the trustees approved it.

In the wake of the McLean indictment, the trustees now have second thoughts. In essence they are acknowledging belatedly that they did not know enough about the Chapman deal or about the firm's role in raising funds for Mrs. McLean's campaign for city comptroller.

The city's retirees have reason to wonder how safe their retirement funds are when the trustees consider investments so cavalierly. They have the right to demand that stricter attention be given to the fund's investment choices.

Investment for socially significant purposes is not necessarily bad strategy. But a retirement fund's chief goal must be safeguarding its members' money. It must err on the side of caution. High-risk investments should be undertaken only rarely and ought to adhere to strict guidelines -- with no exceptions.

The Baltimore City pension fund's weaknesses must be corrected without delay.

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