Pension system gains $6 billion on investments, 20% rate of return

By Megan Poinski

Pension system logoThanks to an improving national economy and careful portfolio management, the State Retirement and Pension System blew past its estimates and gained $6 billion in fiscal 2011, a 20% rate of return.

The performance was nearly three times the benchmark rate of return of 7.75%, set by the system’s board of trustees.

Retirement and Pension System spokesman Michael Golden said that the system’s success is through much of its diversification.

“It’s a combination of excellent management provided by our investment division and the turnabout of the economy,” he said.

The system made most of its money through private equity investments, which make up 47% of the entire portfolio, and had a rate of return of nearly 39%. Private Public equity and real estate also posted high rates of return – 24% for private public equity, and 23% for real estate – but the system had invested substantially less in those areas.

There is no estimate of how this helps the pension system’s long-term unfunded liability because investment income is amortized over several years. However, Golden said, coupled with the legislative changes to contributions and future annuities that passed the General Assembly this year, it should make a significant difference. The most recent figures indicate that the pension system has funding for 64% of the pensions it has promised.

$73 million court judgment

The pension system got an unrelated piece of good news earlier this week. The Court of Appeals of Maryland ordered Seattle-based Milliman Inc., a former actuary for the system, to pay the state $73 million that the system missed out on as a result of improper calculations over years.

With this ruling from the state’s highest court, the issue has been definitively settled; there are no federal issues included in the lawsuit.

“This is a significant, important victory for the system and retirees,” Golden said.

Milliman worked with the pension system from 1982 to 2006, and made complex calculations to ensure that employer contributions were sufficient to meet pension needs. During a 2004 self-audit, Milliman discovered that it had forgotten to include benefits paid to surviving spouses of police officers and judges in its calculations for 22 years, impacting the State Police Retirement System, Law Enforcement Officers’ Pension System, and Judges’ Retirement System.

The state started pursuing $73 million from the actuarial firm — $34 million in lost contributions, and $38.8 million in interest that the state would have received. The case went through the Board of Contract Appeals, then the Baltimore City Circuit Court, which awarded the state only $39 million. This week’s ruling is on the final appeal, which was completely in the state’s favor.

Golden said the $73 million will go into the retirement trust fund, which is used to pay out benefits.

Milliman, which stopped working for the state when its contract expired in 2006, issued a written statement saying the company was disappointed in the decision. When Milliman stopped working for Maryland, the state was ahead of its retirement targets.

“The biggest losers in this decision are the citizens of Maryland and the citizens of any large state public retirement plans,” the company’s statement says. “If actuaries are forced to decline such assignments in the future for fear of unreasonable liability exposures, the people who count on these plans may be denied the talent and insights of professional actuaries.”

About The Author

Len Lazarick

Len Lazarick was the founding editor and publisher of and is currently the president of its nonprofit corporation and chairman of its board He was formerly the State House bureau chief of the daily Baltimore Examiner from its start in April 2006 to its demise in February 2009. He was a copy editor on the national desk of the Washington Post for eight years before that, and has spent decades covering Maryland politics and government.