For Baltimore City pension fund manager Roselyn Spencer, these are the worst of times.
The past six months have cost the $1.2 billion Employees’ Retirement Systems fund nearly $100 million in paper losses. And that’s before the stock markets went into a precipitous free fall.
Now getting a good night’s sleep is difficult for the executive director of the fund that is responsible for the retirement benefits of all city employees except fire and police.
“I took two Tylenols this morning; I have the worst headache ever,” Spencer told The Examiner in a phone interview.
Adding to Spencer’s headache is trying to determine the value of mortgage-backed securities held by the fund. The volatile assets at the core of current worldwide financial meltdowns are now technically illiquid.
“The banks have put them in a separate account, but at this point they can’t be valued,” she said. “In general, the banks are now trying to determine what the losses are.”
The market turmoil also has frustrated Tom Taneyhill, executive director of the police and fire pension fund, who said he feels helpless as the market continues to fall.
“What’s safe?” he asked. “All the asset classes are being driven down. Where do you go? Even cash isn’t safe.”
Since last year, the $2.1 billion fire and police pension fund lost $190 million in value. This year, things could be worse.
“The best we can do is hold on and wait for the market to rebound,” Taneyhill said.
Contributions to the two pension funds by taxpayers have continued to climb because losses from the last tech stock bubble need to be made up. In 2000, the city forked over $23 million to keep pension benefits funded. For fiscal 2008, the city contributed $118 million — a fivefold increase.
But the amount of money that local governments including Baltimore will have to contribute to make up for the current market losses could be staggering.
“It wouldn’t surprise me if contributions will have to double to make up for these losses,” said Dory Wiley, a pension fund specialist who manages the $110 billion Texas teachers retirement fund. “It’s bleak, pension funds are getting creamed.”
If Wiley is right, the city could be on the hook for hundreds of millions of dollars in extra payments to keep pension funds on an even keel.
To better prepare for market fluctuations, Mayor Sheila Dixon is proposing a 1.5 percent cap on annual increases in payments to retirees. Administration officials said the cap would allow city pension funds to bank market gains rather than distribute them as was done in the past, making it easier for the city to keep pension funds solvent through tough times.
Spencer, meanwhile, said she has sent a letter to city retirees, reassuring them their pensions are safe.
“My biggest concern is to let our members know there will be no change in the benefits that they are entitled,” she said. “… We maintain a diversified portfolio to make sure we stay on the right path.”
