The agency that runs a voluntary retirement plan for state employees failed to adequately disclose a $48 million loss in the market value of a conservative investment pool, according to an audit released Monday.
A toughly worded report suggests that the staff and board of the Maryland Teachers and State Employees Supplemental Retirement Plans had been lax in their oversight of private firms that manage many of the plan's investments. The auditors also said plan managers were unable to answer many of their questions or provide relevant documents.
The issues raised by legislative auditors echo many of the concerns surrounding the much larger Maryland state retirement fund several years ago, when the state pension board and staff failed for many months to detect an investment fraud that cost the system millions of dollars. Those problems led to the conviction in federal court of money manager Nathan A. Chapman Jr.
In the case of the supplemental system, the auditors did not suggest criminal activity and made no referral to law enforcement agencies. But the tone of their criticism raised hackles among board members.
"The language, candidly, in the analysis was somewhat inflammatory," said state Treasurer Nancy K. Kopp, a board member.
The supplemental system, which closed the year with $1.9 billion in assets but which has grown to $2.2 billion, is a deferred-compensation program in which state employees and public school teachers can voluntarily invest part of their income in a tax-sheltered plan.
Michael T. Halpin, executive director of the supplemental plan, said none of the 27,163 investors in the fund in question lost money as a result of the matters raised by the auditors. He said his agency has made many changes in response to the report's recommendations.
"This is a really important issue and it's really important that people not be scared away from something that is working well," Halpin said.
The plan is overseen by a nine-member board appointed by the governor and chaired by Secretary of Budget and Management T. Eloise Foster.
Foster, who served on the larger pension board when the Chapman scandal was unfolding, said she sees no parallels between that system then and the supplemental system now.
How audit began
The special audit, prompted by an allegation made through a "fraud, waste and abuse" hot line, focused on a period last year when many retirement plans were slipping amid the mortgage meltdown, credit crunch and banking collapse.
