Insert photo caption or credit here
by George Liebmann
Baltimore City Funds The Baltimore City Employees Retirement System had an actuarial deficit as of June 30, 2007, of $151.5 million, up from $119.4 million in the preceding year. There was an actuarial surplus position as recently as June 30, 2003. The funding ratio as of June 30, 2007, was 90.5 percent, the actuarial deficit being 43.7 percent of covered payroll. Annual required contributions by the City escalated from $17.7 million in 2003 to $36.8 million in 2007. The Baltimore City Fire and Police System had an actuarial deficit as of June 30, 2007, of $235.2 million, up from $204.5 million in the preceding year. There was an actuarial surplus position as of June 30, 2001. The funding ratio as of June 30, 2007 was 91.9 percent, the actuarial deficit being 92.4 percent of covered payroll. Annual required contributions by the city increased from $34.7 million in 2003 to $54.6 million in 2007, in which year the city contributed an additional $5.4 million toward the accrued deficit. Thus, the city’s combined contributions to the two systems virtually doubled in four years, from $52.4 million in 2003 to $96.8 million in 2007. The two city systems used the same investment manager, Callan and Associates, until June 30, 2002. Thereafter, the Fire and Police System used a different manager, Summit and Associates, and dispensed also with its affirmative action oriented Equity Fund of Funds, managed by FIS Funds Management, Inc. The result has been something in the nature of a controlled experiment. In the ensuing five years, the Fire and Police portfolio outperformed that of the ERS. The divergence in the last year was 1.47 percent; over the five-year period there was an average of 1.18 percent, or an aggregate 5.9 percent. As applied to the ERS’s $1.6 billion portfolio, this difference represents $94 million in lost potential yield, enough to eradicate more than half the ERS actuarial deficit. The ERS has endeavored to conceal its poor relative performance by frequently altering its "benchmarks." Its composite benchmark for 2006-07 was 16.26 percent,as against 18.2 percent for the benchmark used by the Fire and Police system. Montgomery County Fund The Montgomery County retirement system has recently been the subject of substantial controversy as a result of union efforts to gain added influence over its board. Those efforts have been strenuously resisted by its staff director, Stephen Farber, a respected official who was formerly executive director of the National 18. Baltimore County, Five-Year Summary of General Fund Revenues and Expenditures. Passing the Buck: Maryland’s Unfunded Liabilities for State and Local Retirees tem for all employees other than public safety employees in 1994. The defined benefit fund for public safety employees had assets of about $2 billion as of 2005. The plan was 98.9 percent funded as of June 30, 2000, but as a result of benefit liberalizations enacted by County Executive Doug Duncan during his abortive campaign for governor, the funding ratio declined to 75.7 percent as of June 30, 2005, at which point the actuarial deficit amounted to $674.5 million.19 As of June 5, 2008, presumably using June 30, 2007, figures, the defined benefit plan had assets of $2.8 billion, unfunded liability was $631 million, and the funding ratio was 79.5 percent.20 In August 2008, the fund was found to be $2.5 billion and the funding ratio was 79.7 percent.21 Prince George’s County Retirement Systems Current reports for the eleven plans making up the Prince George’s County Retirement Systems are not readily available; in 2006, the Calvert Institute was obliged to use a Public Information Act request to obtain the July 1, 2004–June 30, 2005 report. That report revealed combined plan actuarial assets of just under a billion dollars, $992 million, and combined actuarial deficits of $397.6 million, producing a combined funding ratio of 59.92 percent, as follows: Fund Actuarial Assets Funded Ratio Deficit as % of Payroll Police $571.1 75.48% 243.48% Deputy Sheriffs 23.6 50.19% 363.05% Correctional Officers 39.4 60.24% 154.52% Other 96.1 59.06% 55.04% The position of at least the two largest funds, the police and fire funds, has since deteriorated. The Fitch Bond Rating Agency reported on May 20, 2008, "The County’s funded portion of its pension systems for police and fire are well below average at approximately 65 percent and 60 percent respectively." This suggests that deficits have increased by about $100 million, to $500 million, since June 30, 2005.
Governors’ Conference. Montgomery County adopted a defined contribution sys-
Fire 261.8 73.16% 238.48%
Comments
Dear Mr. Leibmann:
I am writing in response to your July 10, 2009 electronic article entitled “Maryland's Worst Local Pension Liabilities” and the comments regarding FIS Funds Management, Inc. First, FIS Group, Inc.’s Equity Fund of Funds product is not an “affirmative action” program. The product which the article referenced constructs funds comprised of experienced and high performing emerging managers. Emerging managers are not defined by their gender and ethnic orientation, but by the amount of assets managed by the firm. The advantages of investing in equity fund of funds products, such as the emerging manager products offered by FIS Group are discussed in several independent research studies, which indicate that, for certain types of investment strategies, talented investment managers with fewer assets under management have tended to outperform very large investment management firms.
Second, the “affirmative action” reference seems to imply that minority-owned firms ar
Second, the “affirmative action” reference seems to imply that minority-owned firms are not competitive with majority-owned firms; a proposition that I have found to be false in my more than 20 years of observing the performance of thousands of firms in the investment management industry. Since June 30, 2002, the Baltimore Fire and Police fund has made several manager changes as all managers, even the very good ones, undergo cycles of underperformance. Therefore, I find it curious that you have singled out FIS Group in this regard. Could it have anything to do with what you have mischaracterized as its purported “affirmative action” purpose?
Third, the article implies that the Baltimore City Employees Retirement System’s decision to retain FIS Group somehow harmed its performance. Once again, the facts refute the article’s assertion. Since the inception of the current product through June 30, 2009, FIS Group has outperformed the market benchmark by over 160 basis points. Adjusting for cash flows and fees, this return translates into almost $4 million more than Baltimore would have been earned through an investment in the market benchmark. It would therefore appear that Baltimore Employees’ decision to retain FIS Group was not only prudent but profitable for the participants in that system.
I would appreciate having your publication correct the inappropriate inference about FIS Group in this article and would ask that you refrain from further casting FIS Group in a misleading light. Moreover, your readers deserve more balanced and factually sound reporting. Would you not agree?
Got something to say?
Examiner.com is looking for writers, photographers, and videographers to join the fastest growing group of local insiders. If you are interested in growing your online rep apply to be an Examiner today!