Study: Maryland Pension Fund Pays Nearly $600 Million in Wall Street Fees, Erasing Tax Revenues from Gambling

May 27, 2016

ROCKVILLE, MD (May 27, 2016) – A new study estimates Maryland’s pension fund paid $590 million in Wall Street fees in fiscal year 2015, yet statistics show that the fund underperformed its peer group for the year as well as over the last five and ten year periods.  That amount is equal to all the tax revenue from gambling in fiscal year 2015. The study, conducted by the Maryland Public Policy Institute, demonstrates the high costs state employees and retirees pay to Wall Street money managers in exchange for subpar returns.  The full study can be viewed at

“Maryland’s pension fund is paying a very high price for below average results,” said Jeff Hooke, a senior fellow at the Maryland Public Policy Institute and the report’s co-author.  “With a $20 billion cumulative shortfall in our pension system, our public employees and retirees deserve to know why Maryland pays enormous sums to Wall Street for poor returns.”

Like other state pension funds, the Maryland State Retirement & Pension System is not required to disclose all fees it pays to money managers. This study determined Maryland fees by reviewing alternative expense ratios in New Jersey, which has an alternative asset portfolio similar in size and composition to Maryland.  In addition to estimating Maryland’s expenses, the study estimates that Maryland missed out on $5 billion in investment returns by failing (i) to match its peer group and (ii) to index with a blend of stocks and bonds over the last 10 years. 

The Institute has published a series of studies highlighting the questionable returns state pension funds like Maryland’s earn in exchange for high fees.  A July 2015 report showed that the ten states paying the highest median Wall Street fee ratio of 0.66 percent actually earned less than the ten states paying a much lower fee ratio of 0.26 percent.  Maryland was one of the states with the highest fees.

“Maryland retirees have lost billions in income due to questionable compensation to Wall Street money managers,” said Christopher B. Summers, president of the Institute. 

State public pension systems engage investment firms (i) to select traditional publicly- traded stocks and bonds for the systems’ investment portfolios as well as (ii) to acquire alternative investments such as private equity and hedge funds. The rationale for outside managers is that that these firms can supposedly outperform a given section of the market, within acceptable risk parameters.  State pension funds can ill afford questionable costs. The Pew Center on the States estimated in July 2015 that the nation’s state-run retirement systems had a $968 billion shortfall in 2013 – a $54 billion increase from the previous year.

About the Maryland Public Policy Institute: Founded in 2001, the Maryland Public Policy Institute is a nonpartisan public policy research and education organization that focuses on state policy issues. The Institute’s mission is to formulate and promote public policies at all levels of government based on principles of free enterprise, limited government, and civil society.  Learn more at