Changes in pension system foreseen

Md. fund's members will be demanding action, trustee warns

November 16, 2001|By Michael Dresser | Michael Dresser,SUN STAFF

Maryland's troubled pension system will have to change its way of doing business, a dissident board member warned yesterday, saying the only question is whether it happens from the inside or the outside.

Referring to reports in The Sun about the fund's lagging investment record, Carl D. Lancaster Jr. told fellow trustees that the fund's roughly 300,000 members and beneficiaries will be looking for action.

"Changes, make no mistake, are going to take place," he said.

He said the system, which lost more than $3 billion last fiscal year, needs a more open process to select the money managers that handle the fund's investments. In a clear criticism of state Treasurer Richard N. Dixon, chairman of the pension board, Lancaster also said the trustees need to consider a change in leadership.

The Sun reported yesterday that financial experts who reviewed the fund's record and procedures found serious flaws that may have contributed to its last-place finish in a national ranking of the investment performance of 38 large public pension plans.

The board took two steps yesterday that could address some of the criticisms.

The trustees agreed to have a subcommittee and the fund's staff study the possibility of hiring a full-time outside consultant to help guide its operations - a proposal with strong backing from General Assembly leaders.

The board also agreed to its investment committee's decision to consider changes to the system's written investment strategy. Legislative analysts and the pension experts contacted by The Sun found the current statement insufficient.

Dixon sat stone-faced through most of the meeting, chairing the proceedings in a curt tone. Afterward, he declined to be interviewed - continuing his refusal to meet with reporters to discuss the fund's investment returns.

Lancaster, who represents teachers on the board, was the lone dissenter in a key vote in March 2000 that increased the fund's stock holdings just as the market was turning down. In an interview after yesterday's meeting, he said he believes the board should consider whether it needs a new chairman.

"It might not be until the next election" at the board's June meeting, when Dixon comes up for re-election as chairman, he said.

Several trustees continued to press for more information about Maryland's poor investment record. The system's 9.4 percent loss on investments for fiscal 2001 put it last in the ranking of 38 plans by Wilshire Associates.

The Wilshire survey also showed that the state is a longtime underachiever in investment returns.

Dixon, questioning the relevance of the survey, instructed the staff last week to examine the rankings. Wilshire permits the banks that sponsor the study to give pension funds their own rankings, but not those of the other funds in the survey.

"Not knowing which plans are in there makes it difficult to compare apples to oranges," Dixon said in one of his few comments yesterday.

Other trustees expressed interest in learning more about how the fund stacks up against its peers.

"It is important that we restore the confidence of the taxpayers of this state," said G. Bruce Harrison, a trustee who represents state police and retired troopers.

Comptroller William Donald Schaefer, the board's vice chairman, said he was "very embarrassed" by reports of the fund's poor performance.

"We're going to have a legislature down our backs next session just waiting to say we don't know what we're doing," Schaefer said.

He criticized the system for moving slowly to distribute a letter to all pension plan participants reassuring them that the fund and their benefit checks were safe.

The letter, dated yesterday and signed by everyone on the board, tells members and beneficiaries that "your benefits are secure and will be paid without interruption."

Saying the board relies too much on the staff for information, Schaefer said he supports the hiring of an outside consultant.

"Even though it's going to cost some money, I think it's the right thing to do," he said.

Schaefer also suggested that when the pension system has news, it should issue a press release.

Some large public pension funds routinely issue statements when they tally up their earnings for the fiscal year. Maryland's system made no announcement when trustees learned the system's $3 billion investment loss contributed to a $3.6 billion decline in asset value last year.

Arthur N. Caple Jr., chairman of the investment committee, said the fund recently made up most of the additional stock market losses it sustained after the fiscal year ended June 30.

Caple said the fund now stands at about $29.4 billion and is almost back to being fully funded - a condition it achieved in fiscal 2000 but lost in fiscal 2001. At full funding, a pension fund can meet the actuarial estimates of future obligations.

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