Fund rating raises issues

Schaefer suggests trimming stocks in pension portfolio

No word from Dixon

Governor's office, comptroller assure that system is sound

November 01, 2001|By Michael Dresser | Michael Dresser,SUN STAFF

Maryland Comptroller William Donald Schaefer said yesterday that the state pension system should make a modest cut in its stock holdings after a year in which its aggressive investment strategies yielded the lowest return among its national peer group.

But Schaefer, who also serves as vice chairman of the pension board, assured retirees and state workers that their benefits are safe. "The system is still strong. Otherwise you would hear me yelling my head off," he said.

His words of caution came as state Senate leaders said they would ask Treasurer Richard N. Dixon, the pension board chairman, to publicly explain the fund's performance.

Gov. Parris N. Glendening was planning to meet with top legislators to discuss whether changes to the fund's strategy are needed.

Under Dixon's leadership, the retirement plan had racked up large gains in recent years but skidded to a $3.5 billion loss last year. The system's minus 9.4 percent return on investments ranked it last in a rating of 38 large public pension systems.

Wilshire Associates, which compiles the ratings, reported that the median performance of the pension funds was a loss of 6.1 percent, meaning half performed better and half worse.

Maryland's investment loss - which cut the system's assets to $29.5 billion - was attributable to a 17.3 percent decline in the value of its stock holdings.

For the third straight day, Dixon did not return phone calls seeking his comments. A woman at his office said he was traveling, but refused to say whether he was on state business or personal time.

Fund officials have declined to answer questions, saying Dixon is the system's only authorized press spokesman.

Schaefer said the trustees - including himself - "went a little far" when they let the system's investments in equities go above 70 percent near the end of the nation's long stock market boom.

He said the board should lower its percentage of equities, which include stock and real estate, to 68 percent to 70 percent.

That would bring the system's stock holdings to roughly 63 percent to 65 percent, slightly above the benchmark used by many plans.

The percentage in stocks was about 70 percent at times last year, and was about 67 percent when the fiscal year ended June 30.

Schaefer did not excuse himself from responsibility for last year's tumble. He said none of the trustees opposed Dixon's drive to increase stock holdings except Carl D. Lancaster Jr., who represents the teachers in the plan.

Schaefer said the retirement system should hire an outside consultant to advise trustees on investment strategy - a move urged by legislative analysts.

"The board knows what it's doing, but every once and a while it helps for someone else to take a look," Schaefer said.

He said he had not heard about the state's last-place ranking until it was reported in The Sun. "According to [Dixon,] we had a great system and nobody said anything different," Schaefer said.

Glendening's spokesman Michael Morrill emphasized the positive side of the pension board's performance, noting that the pension funding level of 97.5 percent is better than two-thirds of states.

"We may have had a bad performance one year, but in context its performance has not been bad," Morrill said.

Morrill said the governor plans to meet with legislative leaders to discuss investment strategy and the need to come up with an estimated $55 million to $68 million in next year's budget to make up for the losses.

Senate President Thomas V. Mike Miller said he and Sen. Barbara A. Hoffman, chairwoman of the budget committee, decided yesterday to ask Dixon to appear before the panel - probably next week - to explain his investment theories.

"The treasurer took credit when the sun shined, but now that a little rain has fallen, someone has to accept the consequences," Miller said.

He said the retirement fund may need more diversity in its portfolio, but added that now is not the time to divest the state of stocks. He also recalled that there was little second-guessing when times were better.

"Nobody complained last year when the pension fund exceeded all public expectations," Miller said.

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