Adviser to guide pension system

State board yields to Assembly to have investments directed

January 16, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

The state pension system, which lost $3 billion last year, gave in to General Assembly pressure yesterday and began the process of hiring a full-time consultant to guide its investment decisions.

The pension board's capitulation came on an 11-0 vote, with one abstention. The board's chairman, state Treasurer Richard N. Dixon, supported the move after opposing it in a committee vote last week.

The trustees' decision to give in on the consultant issue was made as other disputes between board and legislative leaders were flaring. Relations have reached the point where top lawmakers are discussing legislation that would alter the makeup of the board.

The board's decision to begin the bidding process for hiring a consultant occurred after years of pressure from legislators. In previous years, when the system was making money, fund officials ignored the recommendation.

"This is not a new idea. We have always had consultants," Investment Committee Chairman Arthur N. Caple Jr. said, noting that past consultants had been brought in for specific tasks.

Last week, after the retirement system staff endorsed the idea of a full-time adviser, the Investment Committee voted 6-2 to proceed with the hiring. By yesterday the dissenters, including Dixon, fell into line - except for state retiree representative Ali Alemi, who abstained.

Del. Howard P. Rawlings, who is chairman of the House Appropriations Committee, said the board's action was "relatively responsive."

"What's important is that they're listening to some of the concerns about how they do business," he said.

The board failed to address some concerns raised in a scathing letter to trustees from the leaders of the Assembly's budget committees.

The letter Dec. 21 from Rawlings and Senate Budget and Taxation Committee Chairwoman Barbara A. Hoffman chastised the system for its use of a publication for plan members to justify its resistance to comparing its investment performance with other public pension plans.

The $28.4 billion pension system has come under increased legislative and public scrutiny after it finished last in a survey of the investment performance of 38 public pension plans for the fiscal year that ended in June. The state plan also lagged in long-term rankings.

After the system's performance in the Wilshire Associates survey was reported, board members told beneficiaries they did not agree that the ranking was important.

"We have established objectives for success that do not include comparison with other plans since each pension fund has differing objectives," the trustees wrote to members in the system publication Mentor.

Rawlings and Hoffman, both Baltimore Democrats, called the board's position "absurd" and added: "While it is completely valid for the board to assure members that the system is financially sound, the Mentor publication is not the vehicle to politicize and argue against the concerns raised about the board processes."

Board members also seemed unwilling to yield to legislative leaders' criticism of their decision Nov. 6 to create a subcommittee to study the level of state employee pension benefits. Maryland ranks among the lowest in the country.

In their letter, Rawlings and Hoffman warned that the trustees' action intrudes on the policy-making powers of the legislature.

The pension board killed a motion yesterday to disband the subcommittee, setting up a potential clash with the legislative committees that hold the system's purse strings just a week before its budget hearings.

The voice vote came after board members expressed indignation over the tone of the Rawlings-Hoffman letter, which suggested that trustees might need continuing education on their fiduciary responsibilities.

Comptroller William Donald Schaefer complained that the message was "the nastiest letter I have ever seen from a legislator" to an agency.

The board's decision to risk antagonizing legislative leaders is especially puzzling at a time when House Speaker Casper R. Taylor Jr. is preparing a bill that would raise benefits.

Taylor said yesterday that the matter was purely a legislative matter. "It's our decision, not the pension board's," the Cumberland Democrat said.

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