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

The Court of Appeals of Maryland has ruled that Milliman, Maryland State Retirement and Pension System’s actuary from 1982 to 2006, is liable for damages of approximately $73 million for faulty actuarial valuations that left the state’s plans underfunded.

(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.”

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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).

To contact the aiCIO editor of this story: Benjamin Ruffel at <a href='mailto:bruffel@assetinternational.com'>bruffel@assetinternational.com</a>

The Ontario Teachers’ Pension Plan has made an agreement with Australian Airport owner MAp Airports in which the two parties will swap holdings in three different international airports.

(July 20, 2011) – The Ontario Teachers’ Pension Plan (OTPP) has made an agreement with Australia’s MAp Airports (MAp) to trade its holding in Sydney Airport and cash in exchange for MAp’s holdings in the Brussels and Copenhagen Airports, OTPP said in a news release.

In the deal, OTPP will give MAp its 11% holding in Sydney Airport as well as an undisclosed cash payment in exchange for MAp’s 39% holding in the Brussels Airport and its 30% stake in Copenhagen Airport. The deal will expand airport holdings for OTPP, who are also investors in the Birmingham and Bristol Airports in the UK.

The deal pairs OTPP, the largest single-profession pension fund in Canada with assets of $107.7 billion, with Australia’s MAp Airports Limited, which is one of the world’s largest airport owners and operators. According to MAp’s website, it owned a majority of the Sydney, Brussels, and Copenhagen airports prior to the deal. MAp, which describes itself as “a long-term investor with a uniquely integrated active management model, bringing together both financial and operational expertise,” has a market capitalization of $5.9 billion on the Australian Securities Exchange and lists many large pension funds as investors.

This deal marks a continued interest in infrastructure investments among pension funds and other institutional investors. Yesterday, aiCIO reported that six infrastructure funds closed during the second quarter of 2010 and that a positive trend was expected to continue in the infrastructure market. Airports are attractive targets for investors because they contain little risk and have a long economic life.

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The OTPP has become somewhat of a flag bearer for institutional investors entering into the infrastructure market. In aiCIO Magazine’s summer issue, a column on infrastructure by Dr. Angelo Calvello highlights the OTPP, which summarizes its interest in infrastructure: “Our global portfolios are focused on infrastructure and timberland assets that have a long economic life and offer low-risk, reliable returns linked to inflation in order to help pay pensions for decades.”

In yesterday’s news release, OTPP echoed a similar sentiment about its new acquisitions. “We believe that Brussels and Copenhagen Airports are excellent opportunities that strongly reflect our investment criteria and our long-term investment horizon,” said Stephen Dowd, Senior Vice-President of the Teachers’ Infrastructure Group.

It is not just pension funds that have found infrastructure to be an attractive investment opportunity; infrastructure projects have recognized that pension funds can offer important funding for them as well. In late June, the New York Times reported that the American Federation of Labor-Congress of Industrial Organizations intended to work with union pension fund managers to make $10 billion available to finance infrastructure projects in an effort to increase construction jobs for union members.

By Justin Mundt

To contact the aiCIO editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742