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 enough.

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).