2007 MAY - Legislation Would Force Investment In State Fund - Municipal
retirement boards were both shocked and dismayed when Governor Deval Patrick
filed legislation this February that would require many of our local boards to
turn their pension funds over to the CommonwealthUs PRIT Fund for investment.

The legislation, which came as a complete surprise to the
boards, was included in a bill known as the RPatrick/Murray Municipal
Partnership Act,S containing a series of initiatives aimed at Rimproving the
financial health of the cities and towns and strengthening the partnership
between local governments and state government.

With the CommonwealthUs $26.73 billion FYU08 state budget,
due this July, short by over $1 billion, the Patrick administration has been
seeking ways to allow cities and towns to raise revenue on their own. Included
in the partnership bill was language that would allow communities to impose a
five percent hotel room tax and a two percent restaurant tax. In addition
communities would be allowed to transfer their employees/retirees to the CommonwealthUs
Group Insurance plan.

But what grabbed the attention of retirement board members
was the inclusion of language that would require retirement systems that are
less than 80% funded and have under-performed PRITUs investment return by 2.5%
over the last five years be required to transfer their assets to PRIT for

PRIT, as you know, is the Pension Reserves Investment Trust,
a $47 billion fund which is the investment fund of the State and TeachersU
Retirement Systems. It also contains the pension funds of 70 local retirement
systems, which have invested in PRIT as a local option. Twenty-nine of these
systems, including most recently Middlesex, the largest, have turned all of
their funds over to PRIT for management. The remainder of the 70 systems have
continued to retain their own managers, but have transferred a portion of their
funds to PRIT P which is governed by the nine-member Pension Reserves
Investment Management (PRIM) Board.

In addition to the State and TeachersU Systems, there are
102 local retirement systems. Excluding the 29 systems that are totally
invested in PRIT, there are 73 systems that are potentially facing a mandatory
requirement to junk their own investment consultant and investment managers in
favor of PRIT. Needless to say this has touched off a firestorm among their
retirement boards and their legislative arm, the Massachusetts Association of
Contributory Retirement Systems (MACRS).

MACRS President Tom Welch has declared the governorUs
legislation to be an intrusion over the rights of local retirement boards.
RMany (boards) donUt feel comfortable placing all of their money in the PRIT
Fund,S he said. RThe Board members have a fiduciary requirement to the members
of their retirement systems to be responsible for the investment of their
contributions. Even though a large number of boards have invested in PRIT, they
also have funds elsewhere and would be required to fire those managers, many of
whom have performed well over the years.

Association President Ralph White has been an elected member
of the PRIM Board ever since it was created on January 1, 1984 to oversee the
PRIT Fund. He is the sole remaining original member of the Board and he has
always championed the PRIT Fund. He is also a longtime member of the MACRS
Executive Board and is MACRSU Legislative Chairman, seen by some as a looming

In my mind, thereUs no conflict,U said White. When PRIT was
created, it was anathema to MACRS, a superfund that would swallow all pension
funds of local and county retirement systems.RIn 1984 and every year since I
have stood before MACRSU delegates at their annual conference and said, TNot
so. ItUs not the PRIM BoardUs goal. I will oppose any takeover attempt.USWhite
says, RIt was many years before the 102 boards trusted PRIM and PRIT, but over
the past 10 years, I have witnessed the growing number of boards who have come
to place some of their money with PRIT and even 29 who have gone all the way.
And thatUs the proper route to continue to follow P a local option.

Even though I respect Governor  Patrick and want his administration to be
successful, my word comes first. Regardless of the arguments that will come
forward on behalf of the legislation, I am duty-bound to represent our many
retirement systems in opposition to a mandatory requirement to turn all of
their pension funds over to the state.

Unreasonable Parameters

The parameters in the proposed legislation are unreasonable,
especially the 80% funding level, and for good reason. Funding levels are
greatly impacted by each communityUs fiscal decisions. In a large number of
cases, cities and towns have instituted early retirement incentive programs in
order to avoid layoffs. The resulting implosion of retirees was a setback to
pension funding schedules.

Communities undergoing a budget crisis have reduced or
delayed their appropriation to their retirement boards in order to maintain
necessary city services. ItUs a balancing decision P the community is
appropriating sufficient pension funds to maintain its bond rating while at the
same time keeping its fire stations open and streets plowed. Pensions are a
contractually guaranteed benefit. In no instance are pensions ever endangered
by these decisions.

MACRS Vice President Denis Devine, a member of the Woburn
Retirement Board, agrees that retirement boards have been good fiscal partners
in their communities.

After all, the city auditor or finance director is a member
of the retirement board, and he or she is aware that the level of funding is
not paramount when balanced against the cityUs overall ongoing obligation to
its residents. Retirement board members are also good citizens,S said Devine.

Also, many boards have a different investment objective
than PRIT. In some cases, they have not realized the investment returns of
PRIT. Yet they and their governing bodies feel more secure in having local
control. If the mayors and selectmen feel their pension funds should be
switched to PRIT, they should talk with their retirement boards and express
their opinion.

Reasonable people should be allowed to make their own
prudent decisions. A state mandate is not the way to go.

RI am now also fearful that this represents a precursor of
the dissolution of city and town retirement boards in favor of large regional
boards, or even a statewide municipal board, with a resulting loss of the vital
local personal services, which retirees and their survivors now enjoy.