ANNAPOLIS – The General Assembly’s Joint Committee on Pensions issued three recommendations Tuesday in its final report, sending a message to the state pension fund’s managers to shape up.
“This shows we’re concerned,” said committee co-chairman Delegate James Proctor, D-Prince George’s. “These were the questions of concern (from the last meeting) that have become our recommendations.”
Those questions came from a report by legislative analysts at the end of October that took a highly critical view of the fund’s performance in the fiscal year that ended June 30.
Maryland’s pension fund lost $3.6 billion as the soaring stock market began to cool off.
The magnitude of the drop was partially attributed to the fund’s high rate of more risky investments.
Having 72 percent of its assets in such equities made it particularly susceptible to the slowing market, but the same aggressive strategy had enabled the system to become fully funded last year, way ahead of schedule.
Analysts recommended clarifying the process by which investment decisions are made and also suggested hiring an outside investment consultant to provide advice.
Those two recommendations, as well as a call for comparative performance goals, were included in the committee’s final report. The recommendations are not binding.
At the previous meeting, legislative analysts noted the fund was ranked in last place out of 38 other public funds over $1 billion. This poor ranking caused embarrassment and consternation among committee members and some of the fund’s trustees who later admitted being unaware of the rankings.
Committee members were not unanimous in their support of all of the recommendations.
Sen. Nathaniel McFadden, D-Baltimore, asked how much hiring an outside consultant would cost, and said he was not convinced that the estimated $500,000 to $1 million per year would be a justified expense.
“And there’s no guarantee you’ll make more money with an outside consultant,” added Peter Vaughn, executive director of the pension system.
“We’re saying you’ve got to do something,” said Proctor. “If they say we don’t need an outside consultant then they have to explain to us why.”
The committee also called for a “comprehensive written Investment Policy Statement,” that would be easily accessible and available to the public.
Vaughn countered that such a statement already existed and was sitting in a manual on his desk for anyone who wanted to see it.
The third recommendation was directly related to the ranking that placed the fund’s performance last in the country.
Currently, the system uses a benchmark of 8 percent in investment gains to measure its performance, rather than taking into account the performance of other funds.
The committee’s recommendation called for the development of comparative performance goals related to the annual performance of the market and the performance of other large public pension plans.
At the October meeting, committee members were frustrated by the system’s representatives’ refusal to make changes in light of the substantial value loss.
During that meeting, Carol Boykin, the system’s chief investment officer, maintained the system was oriented for long-term performance and that one year’s loss should not change the investment strategy.
The committee last night warned that it will watch the fund’s performance closely in the future.