State vs. Local Management of Pension Assets: Effects of the Massachusetts Chapter 68 Public Pension Reform

The Journal of Retirement, 2020

To establish how well underperforming systems in Massachusetts responded to consolidation under the oversight of the state’s Pension Reserves Investment Management Board (PRIM), a team of Analysis Group economists has evaluated and quantified the gross returns of local systems that transferred their assets to PRIM’s Pension Reserves Investment Trust (PRIT) Fund. The team, led by Co-founder Bruce E. Stangle, Managing Principal D. Lee Heavner, and Vice President Yao Lu, analyzed data from 105 Massachusetts retirement systems gathered from 2001 to 2016 for their study, State vs. Local Management of Pension Assets: Effects of the Massachusetts Chapter 68 Public Pension Reform, published in The Journal of Retirement.

In 2007, Massachusetts enacted legislation known as Chapter 68 to identify underperforming local  public pension systems. Prior to the Chapter 68 reform legislation, local pensions operated largely independently, and experienced volatility and significant losses. Chapter 68 reforms required systems identified as underperforming to cede control of their pension investments to PRIM. As a result, a substantial number of local systems transferred all or nearly all of their pension assets to PRIM. The study found that, on average, local systems that transferred assets to PRIT experienced an increase in annual gross returns of 8.9 basis points for every 10% of their assets transferred. This increase in return corresponds to a gain of $321 million, nearly 7% of their total unfunded liability in 2016, as a result of the switch.

The study was an independent, pro bono project without funding from, or affiliation with, any third party.

Read the article

Authors

Stangle BEHeavner DLLu YIselin A, Singh P