Senator Brian A. Joyce is pleased to announce that the Senate has 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. 

The legislation would ease the burden on taxpayers in cities and towns with lackluster pension funds. 

The bill currently targets 25 municipal pension funds that left a total of $123.8 million in potential revenue on the table in 2006. For example, Chicopee last year had 56.7 percent of its pension obligations funded and an 8.21-percent return rate over 10 years. If the town had invested in PRIT, it could have earned an additional $6.9 million.  

The legislation would allow PERAC to notify the town that its fund is underperforming and require it to transfer its 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.