Report faults city pension oversight

Lack of expertise is linked to $168 million shortfall


A Baltimore think tank railed yesterday against the city's pension systems for police, fire and municipal employees, contending that their governing boards are staffed by people who lack financial expertise and whose stewardship contributed to a combined $168 million shortfall.

The Calvert Institute for Policy Research said in a report that the pension boards hired a large number of investment advisers to compensate for a lack of investment know-how.

One consultant, Callan Associates Inc. of San Francisco, however, has come under fire for potential conflicts of interest and investment losses, and has been questioned by the Securities and Exchange Commission as part of a broad inquiry into pension consultants.

City officials defended the makeup of the boards and the financial standing of the funds. They say they are in better shape than many state and local pension funds across the country that face a combined shortfall of $350 billion. Public and private pensions were hurt by the market downturn after the dot-com bubble burst and are preparing for the "baby boom" generation to retire.

"It's a nationwide phenomenon," said George W. Liebmann, director of the Calvert Institute. "Every pension fund has been getting into a worse position."

In Baltimore, the Employees' Retirement System for municipal workers and the Fire and Police Employees' Retirement System hold $3.3 billion in assets and provide benefits to about 14,000 retirees.

Each pension system has afunding level of about 96 percent, which compares to roughly 85 percent for the average state and local pension fund. The Baltimore funding levels mean the systems have 96 cents to cover every dollar of future benefits due. The systems are fully afloat for current retirees, officials said.

Like most state and local pension systems, the city boards include trustees who are elected through unions or by employees.

"Given that Baltimore is a city with a significant number of large banks, mutual funds, brokerage firms and academic institutions, this does not appear to be the strongest investment management team that could be assembled," the Calvert report said.

Thomas P. Taneyhill, executive director of the fire and police fund who also once administered the employee fund, said that while some trustees may require on-the-job training, they do have a vested interest in the funds.

"From my experience, they are very interested in making sure the right things happen with the investments in the plan," Taneyhill said.

The employee pension fund lagged its benchmark - the market return that the fund seeks to match or beat - by 0.7 percent last year, according to its annual report.

The fire and police fund, in contrast, beat its benchmark by 2 percent after falling behind its targets earlier this decade.

Taneyhill put part of the blame for lackluster returns in the past at the police and fire fund on Callan Associates, which acted as investment adviser until 2002. Callan still advises the employee fund.

Callan has been criticized for recommending money managers that have paid it for marketing advice or other services.

Callan spokeswoman Mary Schaefer declined to comment on the firm's work in Baltimore but said it supports disclosure of all client relationships and efforts by the SEC to improve transparency.

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