Maryland retirement fund needs extra tax dollars

Pension investments erode in bear market

October 26, 2001|By Michael Dresser | Michael Dresser,SUN STAFF

Dragged down by its performance in the stock market, Maryland's retirement system for state workers will require millions of additional dollars from taxpayers next year to meet its obligations.

Treasurer Richard N. Dixon said yesterday that the extra payment will likely be in the range of $55 million to $68 million, reflecting a 9 percent decline in the value of the retirement fund's holdings for the year ended June 30.

The increased payment puts added pressure on a state budget already under strain from a projected $521 million shortfall in Medicaid and other health programs this year and next.

The state's $21 billion budget is also burdened by a downturn in revenues that is expected to get worse in light of the Sept. 11 terrorist attacks and subsequent anthrax scare, as well as by increased security costs from those incidents.

But Dixon, who also serves as chairman of the pension system, stressed that the added payment is not optional. "This has to be done," he said.

The governor and General Assembly will have to come up with the additional money because the Maryland State Retirement and Pension System plan lost about $3 billion on its investments last year.

The roughly $30 billion system pays monthly allowances to about 77,000 retired state employees and teachers.

Dixon said next year's additional contribution will reverse a five-year trend of diminishing state payments into the pension system -- made possible by healthy investment earnings during the boom years of the late 1990s. He noted that the value of the system's portfolio increased 12 percent last year.

"We're not down anywhere near as much as the market's down because we're diversified," Dixon said. He said the state's performance was better than that of the Dow Jones Industrial Average and the S&P 500.

Dixon said the higher payment, which becomes necessary when the state falls short of its investment targets, reflects market trends over the past 12 to 18 months. He said the exact amount of the payment will be determined by the pension system's trustees in December.

Michael E. Morrill, spokesman for Gov. Parris N. Glendening, said the governor would have no comment until then. "The budget will be based on December numbers and that's what we'll be looking for," Morrill said.

Dixon said he doesn't think the additional payment would be that big a problem in a state with nearly $1 billion in its Rainy Day Fund.

But Sen. Barbara A. Hoffman, chairwoman of the Budget and Taxation Committee, said she wants some answers from the treasurer about the fund's investment policies. She said the additional payment is not a huge fiscal problem, but added that the fund's performance raises policy issues.

"It is a problem because you can't run it by the seat of your pants. It's too much money," the Baltimore Democrat said.

Dixon, who has been a proponent of keeping a large percentage of the state's investments in the stock market, said he sees no reason to change that course.

"This is the time to be holding our position in stocks. You don't want to sell when things are down," he said.

Legislators will get a chance to ask about the pension board's policies Tuesday when the Joint Committee on Pensions holds a hearing on the system's performance.

Hoffman said she is not concerned that the state posted a loss on its investments last year because the downturn was expected.

But she added that she has questions about the state's mix of investments. "Some people have expressed a concern that we're overweighted in equities," she said.

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