Dixon rejects fund study

Md. treasurer says survey on pension system is irrelevant

`Not wrong to be different'

State's plan ranked last in comparison by investment analyst

November 06, 2001|By Michael Dresser | Michael Dresser,SUN STAFF

Maryland Treasurer Richard N. Dixon dismissed as irrelevant yesterday a national survey ranking the state employee pension system last among its peers in investment performance.

In his first comments since the rankings were released last week, Dixon said he was not aware of the state's poor rating until it was reported in The Sun.

"I don't really consider that information relevant because it's against unnamed peers," Dixon said in a brief telephone interview.

The rating by Wilshire Associates measured the investment performance of 38 large public pension systems for the fiscal year that ended June 30. The Maryland system's return on investment was minus-9.4 percent.

The loss does not put retirees' benefits in jeopardy, but it will force Gov. Parris N. Glendening and the General Assembly to cover an unanticipated $55 million to $68 million shortfall in next year's budget.

The Wilshire study also ranked Maryland's $29.5 billion system poorly in long-term performance - putting it in the bottom 10 percent during the past five, seven and 10 years.

Dixon, who is chairman of the pension system's board of trustees, was on vacation last week and unavailable for comment. He defended his silence yesterday, saying, "When I go on vacation, I go on vacation."

Addressing the Wilshire study, he questioned the value of comparisons against "so-called peers." He said the job of pension fund officials is to do well against the actuarial benchmarks the board sets for itself.

The treasurer, a former broker who has pushed the board to expand its stock holdings, said the state's $3.5 billion loss last year was the result of a downturn in the market.

He said he had not had a chance to read a critical report issued last week by analysts for the General Assembly, who cited the Wilshire data. The analysts pointed out that the system failed to reach its goal of an 8 percent investment return by 17.4 percentage points, and suggested that the fund's investment strategy is too risky.

Dixon dismissed the analysts' suggestion, repeated after being ignored in their 2000 report, that the state hire an independent consultant to evaluate its investment strategies. He said the system has never used outside consultants, saying hiring one would cost $500,000 to $1 million a year.

He referred most other questions to Peter Vaughn, executive director of the system.

Vaughn said board members used to get the Wilshire data but decided around 1996 or 1997 that they were no longer interested in seeing the information because the Maryland system is "unique."

"It might be a little reality check, but is it the thing to be judged on?" Vaughn said. "The board decided several years ago that we're not worrying about what other funds do, we're worrying about the objectives of the board."

Those objectives include meeting the 8 percent benchmark the board sets for itself, achieving a 3 percent rate of return after inflation and seeing that money managers meet the goals set for them, Vaughn said.

The board is not interested in comparisons, Vaughn said, because each pension plan is different. "It's not wrong to be different," he said.

His comment that board members decided they no longer wanted to see the Wilshire data contradicts the statements of some longtime trustees, who said last week that pension fund officials had never shared the information with them.

One newer member, Ali A. Alemi, said he would be very interested in seeing comparative information and that he is "outraged" that fund officials had not told him about it.

"I did not know there was such a rating," said Alemi, who has represented state employees on the pension board for the past three years. "I have to have some comparison with others."

Vaughn defended the plan's performance, saying that if it were the worst in the country, it would not be 98 percent funded. He said the plan had met its benchmarks in all but two of the last 17 years - 1994 and last year.

Top legislators have said they plan to meet with Dixon this week, but House Speaker Casper R. Taylor Jr. yesterday played down concerns about the fund's performance.

"After reviewing the explanation that we have gotten on the strategy that the pension system is using, I am much more comfortable with the situation that we're in," Taylor said.

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