SENATE OF MARYLAND

ANNAPOLIS. MARYLAND 214O1-1991

By Sen. Roy Dyson


[ Senator Dyson's Newletter ]

As this is being written an interesting week on Wall Street was coming to an end. The roller coaster ride could have easily attained the status of being the latest and best attraction at Kings Dominion. But even though the number fluctuations may have been staggering, the whole thing needs to be put into a little historical perspective.

The Maryland Comptroller's Office did that for me by way of sending out assurances that the state's pension fund weathered the storm and is doing just fine. Their message, and one that is a good message for any stock market investor, is that in the long haul everything will work out okay. The short haul may be another matter.

Even though there was a 554 point, one-day drop in the Dow stock market index, that was just a 7.7 percent reduction compared to the 22 percent one-day drop on Black Monday, 1987. And the Comptroller's Office points out that even with that recent one-day drop, the Dow is up 15.6 percent this year and the S & P 500 is up more than 20 percent. Not bad when compared with money market account and certificate of deposit interest rates.

Since 1927 equities as measured by the S & P 500 delivered an annualized rate of return of more than 10 percent a year. As for the state pension system, Comptroller Louis Goldstein said, "As a long-term institutional investor, we don't act on short term declines, but rather the fundamentals of the market, In this case they are positive and don't dictate any major shift in current policy." The ability of the market to rebound recently has been a sign of the country's economic health.

Even though I feel comfortable with the management of the state pension system, there still are near-term historical situations that could cause anyone to take a deep breath with such market corrections. Some of those situations, however, involved so-called junk bonds. The state pension system, of course, doesn't invest in junk bonds. Still and all any stock can go south quickly for any reason. That's the reason for a very broad diversification of investments in the state pension system, and many diversified mutual funds for that matter.

I bring this all up as a way of telling you that the idea of pension reform will be on the table during the 1998 Maryland General Assembly. And we as legislators need to be mindful that pensions, no matter how well managed, can be potentially volatile, at least in the short term. And this volatility is associated with real live human beings and their futures. We need to be very cautious about the state's ability to be able to pay a decent rate of return at the time that each and every pensioner is ready for his or her nest egg.

Maryland State Teachers Association, and their local affiliates in Calvert and St. Mary's, have begun a letter writing campaign to legislators supporting pension reform. They are asking that their members be able to contribute up to three percent of their salary into their plan. Now there is no employee contribution, although the previous plan that was supplanted did allow an employee contribution. This seems like a good idea to me.

Hearings will be held in Annapolis in November on the idea of pension reform. These will be issues that will come before my committee, Economic and Environmental Affairs, so they are of special interest to me. I look forward to hearing from teachers and other education employees, about their ideas on pension reform. And for that matter I would like to hear from all state employees.

Of course taxpayers who aren't state employees have just as much stake in the issue. What do you think about this? Any employer can go broke if they don't have a firm control over their pension plan, and government is no exception. As we get close to the start of the 1998 Maryland General Assembly, please call or write either my Annapolis or Great Mills office and let me know your views on this interesting subject. The Annapolis office is 1-800-492-7122, extension 3673 and the Great Mills office is 301-994-2826. Or you can write to P.O. Box 229, Great Mills, MD 20634.

And please don't forget the upcoming local legislative hearings. In St. Mary's it's Wednesday, November 5th at 7 p.m. at the County Commissioner's Conference Room in the Governmental Center in Leonardtown. In Calvert it's Wednesday, Nov. 19th at 7:30 p.m. at Calvert Pines Senior Center in Prince Frederick.



[ Senator Dyson's Newletter ]