Pension Report Draws Criticism

As reported in Pensions and Investments, a study of money management fees paid by state pension systems released Tuesday by two Maryland think tanks is drawing criticism from pension executives for its methodologies and conclusions.

The study was conducted by the Maryland Public Policy Institute and the Maryland Tax Education Foundation.  It found that some public employee pension plans paying the highest investment fees are not generating the highest returns.  As reported in MoneyBeat, the Wall Street Journal’s Blog,

On average, 10 states paying the most money management fees had lower investment returns between June 30, 2007 and June 30, 2012 than 10 states paying the fewest fees.

With regard to Maryland, the Maryland Public Policy Institute report states that,

For the fiscal 2012 year, the State of Maryland spent $241 million on Wall Street money management fees, or 0.64% of beginning assets of the period. These fees as a percent of assets were higher than the 46 state median.

Pension executives from Maryland and North Carolina have critiqued the report, pointing to errors in its calculations:

The study used incorrect numbers that essentially double-counted the North Carolina pension fund’s management fees, skewing them by $218 million,” said spokesman Schorr Johnson in an e-mail. The fiscal 2012 Operations Report of the $81.1 billion North Carolina Retirement Systems, Raleigh, shows fees of $317 million, which would make North Carolina’s cost ratio about 0.42%, Mr. Johnson noted. Treasurer Janet Cowell, the sole trustee, is seeking a correction from the think tanks.

Michael Golden, spokesman for the $40.6 billion Maryland State Retirement and Pension System, Baltimore, said that in addition to “egregious errors” in a similar report a year ago that have not been corrected, this year’s median of fees paid was skewed by underreporting in other state systems. “If the numbers are wrong, you can’t really compare,” Mr. Golden said in an interview.

For more information, see the full story from Pensions and Investments. For more information on the Maryland Public Policy Institute Report, see the MoneyBeat blog, or the complete report, Wall Street Fees, Investment Returns, Maryland and 49 Other State Pension Funds.

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