BOSTON – State Senator Benjamin B. Downing (D- Pittsfield) announced that today the Massachusetts Senate approved legislation that would put underperforming local pension systems into the state’s pension fund to produce a greater return on investments. The proposal would allow the state to review the investment performance of local pension funds. Those funds would be rolled into the state system if their assets are less than 65 percent of their liability payments to retirees and also have an average10-year rate of return at least two percent less than the state’s current rate of 10.51 percent.
As Chairman of the Senate Committee on Public Service, Downing led the debate on the Senate floor this afternoon, helping to shepherd the bill’s engrossment.
"This legislation will reform our pension investment system – making it work better for our retirees, our taxpayers and our cities and towns," said Downing. "Maximizing investment returns for retirement boards means greater flexibility for local budgeting and more secure funding for other needs. This bill is the product of an arduous committee process, and the result is a great step forward."
Senate President Therese Murray said the legislation would ease the burden on taxpayers in cities and towns with lackluster pension funds.
“This is a way to boost the return on local pension funds that are not making as much as they could if they were under the state system,” Senate President Therese Murray said. “It’s a great opportunity for cities and towns to generate millions of dollars they otherwise would not see and relieve taxpayers of the burden of underperforming investment funds.”
The bill currently targets 25 municipal pension funds that left a total of $ 703.3 million in potential revenue over the past 10 years. Pittsfield is one of the 25 municipalities captured by the legislation. Currently, the City of Pittsfield’s pension system is 51.5% funded, with an 8.09% rate of return over ten years. Pittsfield has left $15,366,750 on the table over the past decade – millions of dollars that had to be made up by property taxes, other sources of revenue or through the reduction or elimination of services.
“It was clear to me, when I started to look at the figures, that this proposal would afford taxpayers long awaited fiscal relief,” said Downing.
The legislation would allow PERAC to notify the town that its fund is underperforming and require it to transfer assets to the Pension Reserves Investment Management (PRIM) Board, which oversees the PRIT fund. The bill calls for underperforming systems to make the switch by October 1, 2007.
Because the proposed legislation includes a five-member review board, a local pension system can appeal the determination that it is underperforming. The review board is made up of the Executive Director of the PRIM Board, the Secretary of Administration and Finance, an appointee of the state Treasurer and two municipal union employees, one of whom must represent local firefighters. An exemption for an underperforming system may be granted if it shows that extenuating circumstances render it underperforming and therefore could otherwise be financially sound.
Municipalities who voluntarily join the state system have the option of opting out after five years. Those required by the state to join may leave the state system if they achieve the 65 percent pension obligation within five years. Furthermore, all municipalities will retain their authority to distribute pension benefits as they see fit.
The bill will now go back to the House of Representatives for a concurrent vote.