An advisory opinion has been requested regarding whether the Executive Director of the Maryland State Retirement Agency (MSRA or the Agency) may also serve as a member of the Board of Trustees of a county Supplemental Retirement System in a neighboring state (the local Board). We advise the Requestor that this continued service would be allowable, as long as certain constraints are observed.
The Requestor was appointed beginning in January 1990 to serve as MSRA's Executive Director. The MSRA was established in 1982 and reflects a consolidation of several retirement and pension systems covering State employees, teachers, State police officers and other State and local government units. The systems handle assets of over $10 billion, and are managed by a Board of Trustees which consists of 15 members. This Board is vested with the authority and responsibility for management and administration of all of the systems covered by the law. It appoints an Investment Committee and other committees, and exercises all authority regarding investment decisions. The Board is also responsible to designate an actuary to be its technical advisor, to adopt mortality tables, certify rates of contribution, and issue required reports to members and beneficiaries.
The MSRA is an agency of the Board of Trustees established to carry out the administrative duties and business of the several systems. It is headed by an Executive Director appointed by the Board and serving at its pleasure, and includes an Investment Division headed by a person appointed by the Board on the recommendation of the Executive Director. Under the supervision of the Board, the MSRA controls and manages all funds and moneys of the several systems except those that are otherwise excluded by law. Though the Board is deemed to be the owner of all system funds, it may delegate some or all incidents of ownership to the Agency for the purpose of administering the investment portfolios of the several systems. The law establishes or provides for the establishment of a variety of policies regarding the investment and management of systems' funds, and charges the Executive Director with consulting with the Investment Committee in developing, interpreting, and administering any requirement relating to these policies.
The Executive Director is responsible for the day-to-day operation of the Agency, and has authority to execute all documents that must be signed by or on behalf of the Board. In addition to serving as Secretary to the Board, the Executive Director's general management duties within the Agency include the preparation of long term financial and business plans, supervision of the preparation of financial statements, making recommendations designed to ensure the continued financial soundness of the systems, and directing the establishment and implementation of the investment programs of the systems. He prepares Board and committee agendas and provides support for meetings, interprets and implements Board policies, and prepares and evaluates, in consultation with the Investment Administrator and the actuary, complex financial data and forecasts. He also directs and participates in the preparation of Board contracts and documents and supervises the negotiation of Board contracts.
The Requestor is an enrolled actuary and a member of the American Academy of Actuaries, and has served as actuary or benefit coordinator for a variety of private entities. Immediately prior to his employment with MSRA he was employed as the Executive Director of the Montgomery County Employees' Retirement System Board of Investment Trustees. The Requestor lives in Virginia and since 1976 has served as a Trustee of his County's Supplemental Retirement Board. He has been appointed to this position by the County Board of Supervisors (the local governing body) as a citizen member. His current term expires in 1992. He serves as Vice-Chairman of the Board and Chairman of its Investment Committee. This Board functions in much the same way as the Maryland Board of Trustees in that it is the primary policy and decision-making body with regard to this system. It consists of 9 members, including 4 citizens and the rest county staff. The system covers county administrative employees and has assets of about $500 million. This activity was approved by the Montgomery County Ethics Commission while he was employed in that County.
The MSRA has Agency standards of conduct provisions, that, in addition to referencing the Ethics Law, include more restrictive provisions as to disclosure, interests and fiduciary relationships that address the more specific concerns of an agency that has significant investment and other activities. The MSRA standards include a provision that "employees of the systems shall not advise other individuals or organizations regarding timing or purchases, sales or retention on the basis of privilege or confidential information regarding activity of the systems." They further provide that "employees of the systems shall not have any outside or private employment incompatible with the concurrent employment with the systems." The Requestor expresses the view that his local service would not be inconsistent with these provisions and notes that this experience was known to and viewed as an experience asset by the appointing authority. Also, the Requestor indicates that he is not aware of any overlap between the Maryland and county systems in services used, information obtained or vendors employed, except that both systems use the same actuarial firm. This is, however, a national firm, and the individual actuaries are different for the two systems.
This request involves application of the outside employment, prestige and information provisions of §§3-103, 3-104 and 3-107 of the Public Ethics Law (Article 40A, §§3-103, 3-104 and 3-107, Annotated Code of Maryland, the Ethics Law). Section 3-103(a)(1)(i), for example, prohibits an official from being employed by an entity that is subject to his authority or that of his agency or that has or is negotiating contracts with his agency. Consistent with prior Commission opinions, we believe that the Requestor's service on the local Board would be the kind of management and operational activity that would be viewed as employment even though it involves little or no compensation. Since the local Board does not have authority or contractual relationships with the Maryland System, however, we conclude that the strict employment prohibition addressing these kinds of relationships would not apply.
Subsection (a)(1)(ii) of §3-103, however, further bars any other employment that would impair an individual's impartiality or independence of judgment, §3-101 bars participation in matters involving entities with which one has certain economic relationships, and §§3-104 and 3-107 of the Law forbid the use of prestige of office or of official confidential information for one's own gain or that of another. Application of these provisions has not generally involved the same kind of strict prohibition approach reflected in §3-103(a)(1)(i). For example, the impairment provision of subsection (a)(1)(ii) applies to bar employment where the particular circumstances of the individual's State duties and the existence of relationships between the private and official functions and affiliations suggest that the private work would impact on the impartial and effective performance of the individual's State duties.
The other provisions of the Law also apply depending on the nature of the person's particular duties and the potential relationship with private affiliations. These limitations have, in fact, generally not been applied to completely prohibit a private activity, but rather to function as restraints on otherwise permitted conduct.1 We have considered the impairment and other provisions of the Law in a variety of private consulting and secondary employment situations, including some that involved service with other states or other levels of government within Maryland. These Opinions have resulted in development of criteria for evaluating these kinds of situations, relying primarily on the inconsistent employment and prestige provisions. These criteria are set out in detail in our Opinion No. 90-4 and were developed in prior Opinions No. 85-18, No. 86-14, and No. 86-18. They consider factors such as geographical location, the potential for overlapping client or service area populations, subject matter relationship to the State of Maryland responsibilities, the potential for use of State time, information or materials in pursuing the activity, and the possibility for confusion of State position and status with the private function.
In applying these factors to the situation presented here, we do not believe that they would apply to flatly prohibit the Requestor's service with a local Board in another state. There do not appear, for example, based on the description of the situation as it stands, to be direct relationships between the two systems that would indicate that the Requestor has been impaired in his ability to carry out his MSRA duties with impartiality and independence of judgment. Nor does there appear to be a basis in this case for concluding that the other provisions of the Law should apply to flatly bar the activity. There are not, for example, any situations where he would be called upon to disqualify himself from MSRA action based on his service with the local Board, or (especially since his local service predated his Maryland appointment) likely situations where he would be improperly using his status or position with the MSRA for the benefit of himself or another.
We recognize that these two systems function within the same metropolitan area, and use the same actuary, and also that they are large institutional investors and the Requestor could have access to confidential information from both that could be of value to or otherwise impact on the other. He advises, however, that major investment decisions are generally turned over to investment managers, and that it is unlikely that any information would be available to him that would be of use in his other capacity. He also notes that he is subject to federal securities insider trading laws.
Under these circumstances, and in the absence of any specific information that would indicate that this service has presented any conflict issues as to his MSRA employment, we advise the Requestor that the Ethics Law would not bar his continued service with the local Board. We want to make it clear, however, that he must continue to be aware of the application of the provisions of the Ethics Law, particularly those addressing impairment, use of prestige and use of confidential information. Should any circumstances arise that would suggest any concerns under these provisions, or which would require his disqualification from participation in matters on behalf of the MSRA, then further review of the activity should be requested.
William J. Evans, Chairman
Robert C. Rice, Ph.D.
Barbara M. Steckel
Date: June 21, 1990
1 See Opinion No. 86-20 for an example of a situation, however, where the impact of the nonparticipation requirement was so extensive as to make the service impossible, and Opinion No. 82-22, where service with another level of government was disallowed based on a combination of concerns raised under these provisions.