County treasurer charges political ploy on pension fund report

By Susan Vaughn - May 31, 2007

The Dukes County contributory retirement system had a 14.59 percent rate of return on its pension fund last year, an increase from 7.75 in 2005, according to a preliminary report issued by the state Public Employee Retirement Administration Commission (PERAC) earlier this month.

The county's 2006 rate of return brought its five-year average up to 8.19 percent, but the new figures still might not be good enough to satisfy PERAC and Gov. Deval Patrick, Dukes County treasurer Noreen Mavro Flanders said Tuesday.

"We thought we were doing our job, given what we could invest in," she said, explaining that PERAC provides specific guidelines on how the local systems may invest. Because Dukes County is one of the smaller local pension systems, with $55 million in its fund, it is not allowed to invest in some of the riskier hedge and venture funds, she said.

Governor Patrick has proposed legislation that calls for local systems earning 4.79 percent or less from 2001 to 2005 to be taken over by the state Pension Reserve Investment Trust Fund (PRIT), which had a 16.7 percent rate of return last year. Municipalities have been allowed to put their pension funds into PRIT, which Dukes County has been doing gradually, with $45 million now in that fund. The county was listed earlier this year as one of 35 underperforming local pension funds that would be taken over by the state fund, under the proposed legislation.

Ms. Mavro Flanders said PERAC's executive director, Joseph E. Connarton, released the investment report earlier than its usual June release, as a political ploy. "Connarton is looking to have more control over the local systems," she said. "He's playing the deal with Governor Patrick. He's stirring it up to see if it will play into what Governor Patrick has proposed."

In the preface to the PERAC report, Mr. Connarton said Governor Patrick's proposal to establish an investment and funding standard has created interest that "may lead to improved and strengthened local pension systems or may ultimately lead to dramatic changes in the very structure that has served system members and taxpayers so well for so long." PERAC has not taken an official position on the bill.

Ms. Mavro Flanders and other municipal officials are not pleased with the proposed legislation. She blames Governor Patrick for changing the rules midstream, and saying that the local systems are not doing their jobs, without looking at their performance records.

Dukes County's pension fund is performing ahead of schedule and still preserving funds enough to pay its pensioners, Ms. Mavro Flanders said. The county pension board set up its investments to preserve the fund's principal and not take a lot of risk, she said. "We are fiduciaries, trustees that take care of our members," adding that the PRIT fund doesn't have pensioners to worry about since it is a big endowment fund. "We have to keep some of it liquid," she said.

"I don't mind someone setting the bar for us, but I don't think it's good politics," Ms. Mavro Flanders added.

The governor's proposal also says municipalities with less than 80 percent of the funds in hand or invested to cover future payments to retirees would also go under the state's control. Dukes County's ratio for 2006 was 63.8 percent, according to the PERAC report, but Ms. Mavro Flanders said the county system is ahead of previous legislation that required all municipalities to be fully funded by 2028. With the current rate of return, Dukes County's fund will be fully funded by 2023, she said.

The governor's bill has not passed out of committee and it still may not pass at all, Ms. Mavro Flanders said. She said the state should have given the towns more warning about the proposed legislation.

The rates of return last year among the 104 local retirement systems ranged from 7.52 percent to 18.09 percent, according to the PERAC report. The median return was 13.99 percent and the composite return was 16.07 percent. For the 78 systems that invested on their own, the median return was 13.22 percent and the composite return was 13.94 percent.

In the latest report, 45 local systems performed under Dukes County's fund, with many in the 14 percent to 15 percent range.

The PERAC report also pointed out that among the non-PRIT systems, eight of the 10 best performers had investment consultants, and the common characteristics of those systems were good-to-excellent performance by investment managers and diversified asset allocation, highlighted by healthy exposure to international equity and real estate.

Dukes County's retirement system has had an investment consultant for more than 10 years, Ms. Mavro Flanders said, and PERAC has recently allowed the smaller funds, including Dukes County's, to invest in real estate.

She said she doesn't know what will happen with the legislation. The county board has sent its lawyer to all the hearings at the State House, but she added, "We don't have enough clout to influence anything."