New Law Targets Pension Systems

SEPT 2007 - Association Opposed Passage -  Legislative leaders handed Governor Deval Patrick a hard fought victory in July with the passage of a new law that turns the pension assets of so-called “underperforming” retirement systems over to the state’s PRIT Fund for investment.

Filed by Patrick this past winter, as a key provision of his Municipal
Partnership Act, the new law (Chapter 68, Acts of 2007) targets those
local retirement systems that are less than 65% funded and are also not
within 2% of the annualized ten year return of the state, which is
currently 10.11%.

Of 104 local retirement systems, it is expected that less than a dozen
funds will be found to be “underperforming” and thus forced to join the
state’s Pension Reserves Investment Trust (PRIT) Fund. Another five
systems, which would have qualified as ‘underperforming”, had already
placed their pension assets with PRIT. Association officials, along
with members of local retirement boards, adamantly opposed the bill.
While Chapter 68 is far less draconian than the proposal filed by the
governor, it is still met with disdain at the local level.

“This really came down to an issue of local control. We have always
argued that the term “underperforming” was a misnomer. All of our
retirement systems have been earning above the assumed rate of return,”
explains Association President Ralph White, who is also a member of the
Pension Reserves Investment Management (PRIM) Board. “I don’t want our
members to misunderstand this issue and think their pensions are in
jeopardy, nothing could be further from the truth.”

Administration officials, backed by some local leaders, argued that the
investment returns of some retirement systems were so far below that of
the PRIT Fund that “money was being left on the table” and allegedly
hurt local governments in not paying off the pension liability fast

The new law follows a 2006 report by the conservative Pioneer
Institute, which first alleged a disparity between the  performance of
the state’s PRIT Fund and many local systems. Retirement officials
successfully rebutted the Institute’s methodology and conclusions in a
widely circulated White Paper (See January ‘07 Voice).