Treasurer intervenes in pension panel vote

Hastily convened, board reverses itself, keeps fund manager

January 05, 2001|By Greg Garland | Greg Garland,SUN STAFF

After Maryland Treasurer Richard N. Dixon intervened, the state pension board abruptly reversed a decision last month to end a contract with one of its fund managers.

The fund manager had been fired because it changed investment offerings to state employees without telling the board. On Dec. 26, Dixon called an emergency meeting for the next day to urge the board to overturn that decision.

The meeting was called with barely 24 hours' notice. Some members could participate only by phone. One member who had opposed Dixon on the issue was out of town for the holidays and said later that he did not get notice until after the meeting had been held.

"I know there is a lot of frustration among members over how it was handled," said William D. Brown, who serves on the pension board as a representative of the state's teachers. "This sneak attack was inappropriate."

Dixon, who was chided by General Assembly leaders last year for ruffling feathers with his brusque manner and strong-willed leadership style, was unapologetic in an interview this week.

Other members of the board declined to comment on the decision.

He said that he was just trying to protect the interests of state employees and that it is his prerogative as pension board chairman to call meetings whenever he chooses.

The board had voted 8-1 on Dec. 19 to terminate its contract with Variable Annuity Life Insurance Co.(VALIC), a subsid- iary based in Houston of American General Corp., a giant in the financial services industry.

Eight days later - after Dixon applied pressure - the board voted 8-2 at the hastily called meeting to rescind its action.

In early December, VALIC pulled its clients' money out of two funds that were not meeting expectations, according to company officials. The move, which affected VALIC clients across the nation, was made with little advance notice to plan participants - and without the approval of Maryland's pension board.

About 300 college faculty members from Maryland with money in the VALIC funds were affected. They were told they could shift their money into other investment funds, or it would automatically be put in a money market account that is among five funds VALIC still offers in Maryland.

John E. Pluhowski, a spokesman for VALIC's parent company, said many of its Maryland clients had been pulling out of one of the funds because of its disappointing performance, and the other had only one Maryland client enrolled.

"We understand the board's concern about following their process, and we regret any disruption our proposed change in investment managers has created," Pluhowski said.

Brown said this week that he regarded VALIC's maneuver as a serious breach of its contract with the state.

He noted that Carol Boykin, the pension board's chief investment officer, had recommended terminating the company's contract - although the board's investment committee, which includes three outside business representatives, advised against taking that action.

"If there was a legitimate reason for us to rescind that vote, I think it could have been done in a proper manner," Brown said. "It didn't have to be done this way."

Dixon disagreed.

"I thought it was urgent to get it taken care of," he said. "It would have caused disruption of a lot of people's participation in the optional retirement plan if the vote had not been rescinded."

He suggested that Brown and other board members who wanted to get rid of VALIC are unhappy only because he outflanked them by calling the emergency meeting.

"They didn't understand they had a chairman who knows how to count votes," Dixon said, noting that some people serving on the 14-member retirement board who supported keeping VALIC hadn't been able to attend the Dec. 19 meeting.

The pension board's records show that eight members voted Dec. 19 to oust VALIC: Brown, Carl D. Lancaster, G. Bruce Harrison, Comptroller William Donald Schaefer, Arthur N. Caple Jr., Frank P. Casula, Morris L. Krome and Ali A. Alemi.

Dixon cast the sole vote against terminating the contract.

At the meeting Dec. 27, eight members voted to rescind the board's earlier action, including three ex-officio members who had not been present Dec. 19.

Voting to rescind were Dixon, Schaefer, Casula, Caple, State Police Col. David B. Mitchell, State Schools Superintendent Nancy S. Grasmick and T. Eloise Foster, Maryland's budget secretary.

Harrison and Krome voted against rescinding.

Brown said he doesn't know why Dixon was so intent on getting the vote overturned.

Peter Vaughn, executive director of the state retirement and pension system, said the optional program at issue is for college faculty only. The state contributes 7.25 percent of a faculty member's pay for retirement purposes, and the employee can make supplemental contributions.

Vaughn said about 31,600 faculty members participate.

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