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Maryland pension system misses earnings goal by 5 percent points

Maryland's pension system for state employees earned just 2.68 percent in returns in the past fiscal year, missing its target by about 5 percentage points.

The $45.8 billion pension fund for state workers, teachers, law enforcement and other retirees has a target rate of return of 7.65 percent.

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Invested in stocks, real estate and alternative investments such as private equity, the pension fund has had an unfunded liability of about $20 billion, and critics have taken aim at what they describe as lackluster returns and high fees paid to investment managers.

The widely watched S&P 500 index, which tracks large domestic stocks, was up about 5 percent over the fund's fiscal year, which ended June 30.

But those who oversee the system said they were satisfied with the fund's long-term performance.

"While earnings for this one year fell short of our expected rate of return, the board continues to focus on long-term performance," said State Treasurer Nancy K. Kopp, who chairs the pension system's Board of Trustees. "Over the last five years our average return has been close to 9.4 percent, a much more relevant measure of the overall health of our investment portfolio. Although this has been a challenging year for most institutional investors, the wisdom of the board's decision some time ago to diversify its portfolio has been borne out by its long-term positive returns."

Some other state employee pension systems also recently posted annual returns of under 3 percent, including California's and Rhode Island's.

The Maryland State Retirement and Pension System had about 69 percent of the assets needed to pay for future and current retirees' pensions in the prior fiscal year. Typically, a pension system must be more than 80 percent funded to be considered healthy.

Michael Golden, a spokesman for the system, said pension officials are in the midst of calculating how much the system is underfunded.

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