Pension savings give Md. extra $30 million State treasurer denies shortfall of $80 million

December 03, 1998|By Michael Dresser | Michael Dresser,SUN STAFF

State Treasurer Richard N. Dixon told skeptical legislators yesterday that Maryland will have an additional $30 million available to spend this year because it will owe a smaller sum to its employee pension system than previously projected.

Dixon, appearing as chairman of the state pension board, dismissed news accounts of an $80 million-a-year shortfall caused by a change in actuarial assumptions. He said the reports were based on preliminary estimates that had been revised.

"It's incorrect, overblown, wrong, misleading," Dixon said. A state-hired actuary said the correct figure for the actuarial change was $35 million a year.

Dixon said the cost of the actuarial change will be more than offset by the strong performance of the state's investments, which brought in almost $65 million more than projected.

At a contentious hearing of the Special Joint Committee on Pensions, the treasurer boasted that the investment performance had brought the fund 90 percent of the way to being fully funded -- a dramatic turnaround from the level of underfunding in the early 1980s.

"Not only is our system sound, our system has never been as sound in the history of the state of Maryland," said Dixon.

But some leading legislators were not appeased, complaining that they had been misled about the actuarial assumptions underlying the $3 billion benefit increase they approved in the spring.

Their ire was stoked by news reports that the state would have to come up with an additional $80 million a year to make up for the pension system's use of outdated life expectancy tables.

Sen. Barbara A. Hoffman, chairwoman of the Budget and Taxation Committee, said legislators agreed in the spring to use a more optimistic projection of the plan's assumed rate of earnings after receiving assurances that the actuarial assumptions were sound.

"I believe I did not get a straight answer as a legislator, and I am offended by that," the Baltimore Democrat told Dixon. "I feel I've been had, and it's not a nice feeling."

The legislative inquisition of Dixon and state-hired actuaries was led by Sen. Robert R. Neall, who said he repeatedly had his concerns about the state's actuarial assumptions dismissed by pension officials in the spring. He pointed to a statement by actuaries that they expected to make only a few "refinements" to their formulas.

The senator expressed concern that the good news of additional money from investments was masking an underlying flaw in the assumptions behind the bill that raised state employee and public schoolteacher benefits this year.

"If we don't meet our investment projections, guess who pays the difference? Ma and Pa Taxpayer," Neall said.

The Anne Arundel County Republican said legislators agreed to the benefit increase only after being assured that actuarial changes would be minimal.

"Thirty million a year for 30 years, that's not minimal," Neall said.

But Gene M. Kalwarski, managing partner of Milliman & Robertson Inc., said the $30 million-a-year change in assumptions is merely a "refinement" to an actuary looking at a $33 billion pension system.

He said the change would have "zero impact" on the system.

Pub Date: 12/03/98

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