Politics and pensions

August 09, 2004

AFTER DELIBERATING for most of last week, a federal jury in Baltimore is expected to soon decide the fate of Nathan A. Chapman Jr. He's the investment banker who steered money from the state employees pension system to his own companies.

At the time Mr. Chapman's allegedly criminal misdeeds were uncovered, the system was in terrible shape -- far worse than a downturn in the economy could justify. Three years ago, it was rated dead last in performance among comparable state pensions nationwide. Its mismanagement was an embarrassment to the state, and placed in jeopardy the retirement incomes of more than 94,000 retirees and 190,000 current government workers.

There's been a shake-up in management since then and some major reforms to the system, but the question remains: How good a shape is the Maryland State Retirement and Pension System in today?

Fortunately, the answer is: quite a bit better. Last month, the system reported total assets of $30.1 billion as of June 30, a 16.2 percent increase from the previous fiscal year. More encouraging news came this past week. Maryland's retirement system is no longer in the back of the pension pack. Its performance ranks in the top half among its peers.

Comptroller William Donald Schaefer, who serves as chairman of the pension system's board of directors, deserves some credit for the turnaround. So do his fellow board members and members of the General Assembly who insisted on reforms.

But many of these same parties deserve some of the blame for past troubles, too. Mr. Chapman's misdeeds were made possible by an unqualified, unprofessional and politically minded board that ignored much of the details of pension investments. Not to mention a previous governor and legislature that were, at best, inattentive as well.

How have things changed? As required by law, recent appointees have greater business acumen and are more qualified to review investment decisions. Collectively, they have experience in equities, real estate, banking and economic theory. Clearly, there is an atmosphere of greater vigilance.

The actions of Mr. Chapman, who was once proudly heralded as the nation's first African-American to head a publicly traded investment firm, was a symptom of a greater problem: chronic mismanagement. And while any one-year performance is not a perfect measure (sometimes stock-pickers just get lucky), it is a strong indicator that management is much improved. No matter how the Chapman jury rules, that's a big dividend for state retirees.

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