Maryland State Retirement System’s Former Actuary Liable for $73 Million

(July 21, 2011) – In a July 20 ruling, the Court of Appeals of Maryland upheld a $73 million award to the Maryland State Retirement and Pension System (MSRPS) from the System’s former actuarial firm Milliman, concluding that the actuary’s repeated errors had left three of the state’s ten plans underfunded.

The court held that Milliman had failed to include in its actuarial valuations benefits payable to the surviving spouses of participants in the State Police Retirement System, Law Enforcement Officers’ Pension System, and Judges’ Retirement System over a 22 year period. The $73 million in damages represents the value of the lost contributions and investing earnings on those contributions that resulted from Milliman’s errors.

“We’re obviously very happy with the decision,” Michael Golden, Director of External Affairs at Maryland State Retirement and Pension System, told aiCIO. “Soon we can recover the $73 million and put it into the trust fund where it belongs.” He explained that the MSRPS now had a system in place in to prevent such an error from happening again.

“This is a victory for Maryland state employees and the retirees who depend on a sound retirement system in their golden years,” said Attorney General Douglas F. Gansler in a release. “I’m grateful for the exceptional work of the Assistant Attorneys General whose dedication to this case just confirmed our assertion that outside contractors hired by the state will be held accountable for the serious and costly mistakes they make.”

Milliman performed annual actuarial valuations for MSRPS from 1982 to 2006 to determine the necessary amount of state contributions necessary to fund future liabilities. The Maryland State Board of Contract Appeals earlier ruled that Milliman had failed to meet professional actuarial standards because of its repeated errors and that in doing so the actuary had breached its contracts with the retirement system.

“We are pleased with the outcome,” State Treasurer Nancy K. Kopp, who also serves as Chair of the Board of Trustees of the MSRPS, said in the release. “Today’s decision by the Court of Appeals offers further proof that we take our fiduciary responsibilities seriously and that we will pursue all avenues to protect the system for our members and their families.”

Click here to read an article from aiCIO’s summer issue discussing the challenges pension funds face in calculating the correct amount of actuarial liabilities by Charles E.F. Millard, the former director of the Pension Benefit Guaranty Corporation (PBGC).