The recent column by Marta Mossburg, "Maryland Retirement Fund: Paying for Poor Performance" (Oct. 12) offered undeserved criticism of the compensation awarded the State Retirement System's chief investment officer and unjustly questioned the integrity of the system's method of accounting. In the spirit of transparency and openness, I readily provided the columnist with information on both issues over the course of the last few months. Unfortunately, she chose not to share information that did not reinforce her expressed opinion of public pension plans.
It is true that a part of the system's investment chief's compensation was based upon the performance of the system portfolio, consistent with the employment agreement the system holds with its chief investment officer. Under his leadership, the system realized a 14 percent return on its investments in fiscal year 2010 — exceeding the 11.8 percent benchmark by 2.2 percent, or approximately $625 million more than expected for our pension system. This performance ranked Maryland in the top 35th percentile among its peers. By any objective measure, he earned his compensation.
Ms. Mossburg also contends that the system is "hiding" its 2009 losses through accounting chicanery. First, it should be pointed out that current market value of assets, current gains or losses are consistently and clearly reported to the public. Second, the method used by virtually all public pension plans to compute the actuarial value of assets is known as "asset smoothing." This method spreads both asset losses and, it must be emphasized, asset gains, over a five-year period.
Asset smoothing provides an employer with greater predictability with respect to the value of its pension assets and thus greater predictability with respect to its funding obligations. If an employer's funding obligations were subject to the constant fluctuations of the market, those obligations would become so unpredictable as to make state budget planning exceedingly difficult.
Smoothing lessens volatility in the state's contribution rates year-to-year, which is even more important at times such as these when state revenues are severely down. Remarkably, the impact of pension costs on the state's budget has been a central argument of pension plan critics, including Ms. Mossburg. I would urge the critics to consider the value of this longstanding practice and to visit our website at http://www.sra.maryland.gov to view our Comprehensive Annual Financial Report and regular market value updates.
R. Dean Kenderdine, Baltimore
The writer is executive director of the Maryland State Retirement Agency.