State Board of Contract Appeals Determines Retirement and Pension System is Due Nearly $73 Million from Contractor

BALTIMORE, MD ( January 14, 2010) - Attorney General Douglas F. Gansler today announced that the Maryland State Board of Contract Appeals (MSBCA) has determined that the Maryland State Retirement and Pension System is entitled to be paid $72,956,188 by Milliman, Inc., an actuarial firm that had four contracts with the system from 1982 through 2005. The contracts required Milliman to perform annual actuarial valuations, and to certify to the Retirement System Board of Trustees the amount of State contributions that would be necessary to fund future liabilities. The MSBCA concluded that Milliman made a mistake that was a breach of the professional standards of care that actuaries are obligated to meet in their work, that Milliman’s mistake continued undetected for 22 years, and that this continuing mistake by Milliman was a breach of its contracts with the System.

“The Board’s determination is a total victory and ensures that an outside advisor to the State Retirement System is held accountable for mistakes in its work that could have had serious consequences for the State budget,” said Attorney General Gansler. “I applaud the hard work of the Assistant Attorneys General who worked diligently to achieve this outcome on behalf of the State.”

The MSBCA’s decision involved Milliman’s work on behalf of three individual State systems: the State Police Retirement System, the Judges’ Retirement System, and the Law Enforcement Officers’ Pension System. The MSBCA determined that Milliman’s continued mistake led Milliman to understate the future liabilities of these three systems in its reports to the Retirement System Board of Trustees, and, accordingly, to understate the State contributions that Milliman told the Board of Trustees were necessary to fund those future liabilities. The $72.9 million in damages awarded by the MSBCA represents the value of the contributions, and investment earnings on those contributions, that were lost to the System as a result of Milliman’s continuing mistake.

“We are pleased with the outcome, and we look forward to concluding this matter at the earliest possible time,” said Maryland State Treasurer Nancy K. Kopp.

The MSBCA’s award followed a three-week trial at which the System was represented by the Office of the Attorney General. In making today’s announcement, Attorney General Gansler thanked Assistant Attorneys General Dana Reed, Rachel Cohen, and Kathleen Wherthey and former Assistant Attorney General Gary Kuc.