House OKs bill to overhaul Md. pension board

Experts would replace school, police trustees

`People expect us to do something'

Lagging performance, lax oversight cause move

April 06, 2003|By Michael Dresser | Michael Dresser,SUN STAFF

The House of Delegates approved an overhaul yesterday of the state pension board, in the wake of revelations of heavy investment losses and lax oversight of money managers.

The 140-1 vote sent the measure to the Senate, which is expected to agree to the House amendments and speed the bill to final passage tomorrow.

The bill is intended to add financial expertise to the board overseeing the Maryland employees' pension system and lessen the reliance on oversight by state officials who already hold demanding jobs.

The proposal would remove the Maryland State Police superintendent as a trustee as soon as the bill takes effect, and eliminate the state schools superintendent a year later.

They, along with one other law enforcement representative, would be replaced by unpaid trustees with investment experience.

Currently, the governor appoints two members with investment experience; the bill would raise that number to five.

The system invests and administers the retirement benefits of more than 250,000 teachers, police officers and other active and retired government workers.

The measure is less sweeping than the original proposal, endorsed by the General Assembly's Joint Pension Committee, that would have replaced about half the 14-member board.

That bill would have replaced elected employee representatives with gubernatorial appointees - a provision dropped from the final bill.

Lawmakers have expressed concern about the board's composition as a result of several embarrassing incidents that have affected the $25 billion system over the past two years.

In 2001, legislators learned that the pension system's performance for the fiscal year that ended that June had been ranked at the bottom in a comparison of public pension plans.

At that time, lawmakers were dismayed to learn that most board members were not aware of how the system ranked in relation to its peers.

Conflict of interest

The General Assembly's concerns were compounded by the disclosure last year that New York money manager Alan B. Bond had invested millions of dollars in companies connected with Baltimore investment banker Nathan A. Chapman Jr., who had hired Bond on behalf of the fund.

Those investments - identified by experts as a blatant conflict of interest - ended up costing the fund an estimated $4.5 million.

Legislators later expressed shock over the disclosure in The Sun that trustees had allowed Chapman to retain Bond as a manager of retirees' money after Bond had been indicted on fraud charges in 1999.

Bond would go on to steal millions of dollars from the Maryland fund in a second fraudulent scheme.

Del. Mary-Dulany James, a Harford County Democrat and co-chairwoman of the pension committee, said she hopes the state would be able to attract retired investment professionals to serve on the board.

Lawmakers expressed concern that the superintendents of the state police and public schools do not have enough time to consistently attend meetings of the pension board.

A 2001 investigation by The Sun showed the two officials - current schools Superintendent Nancy S. Grasmick and then-state police Superintendent David B. Mitchell - were frequent absentees.

Action expected

Sen. Edward J. Kasemeyer, a Howard County Democrat and the pension committee co-chairman, said he and James had come to an agreement on the bill's provisions.

Kasemeyer said Comptroller William Donald Schaefer and Treasurer Nancy K. Kopp - chairman and vice chairwoman of the pension board - had asked lawmakers to hold off action and study the issue over the summer.

But Kasemeyer said lawmakers decided they had to move forward this year. "People expect us to do something to react to that situation," he said.

Among other provisions, the bill would set minimum attendance requirements for the trustees appointed by the governor.

It would also set up a separate body to review retiree benefit levels and make recommendations to the legislature.

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