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PERAC Seeks Greater Oversight PDF Print E-mail
SEPTEMBER 2005 - Retirement Systems Wary - Following on the heels of several scandals involving some of the nation's largest corporations, the Public Employee Retirement Administration Commission (PERAC) is about to unveil a series of proposals to strengthen its oversight of our state's 106 retirement systems.

While the headline grabbing scandals have not involved our Massachusetts retirement systems or board members, they have had an impact on the investment process. In addition, state and federal regulators are encouraging those who have been entrusted with public pension funds to review their existing procedures aimed at safeguarding the investment process.

In order to review the existing laws and regulations governing our pension systems, PERAC created a special corporate governance review panel, headed by former MA Attorney General Scott Harshbarger. The panel consists of five members, independent of our pension systems, who have been charged with the task of reviewing the current laws and regulations and offering a recommendation as to how to strengthen the oversight process.

"First off, I want to stress that this review is not the result of any wrongdoing on the part of a particular retirement system or board member. In light of what has happened around the country, the Commission wants to take steps to strengthen our system and avoid potential problems," explained PERAC Executive Director Joseph Connarton. "The goal is to prevent problems from occurring in the first place. However, we also need the necessary tools to respond if a situation were to arise."

The five-member panel is comprised of Harshbarger; Alan MacDonald of the Mass Business Roundtable; Jerold Mitchell, former chief investment officer of the Pension Reserves Investment Management (PRIM) Board; Professor Paul Healy of the Harvard Business School; and Professor Cary Coglianese of Harvard's Kennedy School of Government.
According to Connarton, the Commission's focus is on implementing what is known as "best practices" in our retirement system. "Best practices" refers to what is the ideal industry standard.

Caution Urged

PERAC has received kudos from retirement system officials for the openness of the review process that is currently underway. Rather than operating within a vacuum, then moving forward on a "surprise" proposal, Connarton has held open meetings and invited comment from the retirement community.

In late May, Connarton, along with PERAC's senior staff, held a meeting at their Somerville offices with the executive board of the Mass Association of Contributory Retirement Systems (MACRS). MACRS, of which Association President Ralph White and Legislative Liaison Shawn Duhamel are executive board members, represents all 106 Massachusetts retirement/pension boards.

"It was encouraging to have Joe (Connarton) reach out to the retirement community. Anytime you are talking about increased oversight and new regulatory authority it is going to create controversy," said MACRS President Thomas Welch, a retired Needham firefighter. "While MACRS supports reasonable oversight, we want to make sure that there is not an overreaction to what has happened in the private sector. These so-called 'reform' bills have a way of getting out of control.

"PERAC is still working on the fine print of the proposed legislation, so we have not reviewed anything in detail. There needs to be a balance between putting reasonable safeguards in place, while maintaining the rights of board members and the integrity of the systems."

PERAC's proposal includes: penalties for vendors who violate the rules, regulations and laws that govern the retirement systems; conflict of interest disclosure by board members (including potential financial conflicts); restrictions on who can serve as board members; increased oversight authority from PERAC; new enforcement capabilities, and a raise in the board members' stipend.

"There are obviously some areas where the retirement community is going to disagree with the regulators. That is inevitable anytime comprehensive changes are being made," says White. "While most retirees are not directly impacted by any of these changes, they do have a strong interest in how the retirement systems function. Our members like the fact that their local retirement board has a degree of independence.

"MACRS intends to oppose any attempt to further centralize the function of the boards. This will be made clear when the legislature holds a public hearing on the bill."

 
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