Dukes County pension fund eyed by state
The Dukes County pension fund could be one of 25 underperforming local and county funds to be folded into the state's $50 billion pension fund as a result of legislation passed by the House of Representatives last week.
The bill would allow the Commonwealth to consolidate the underperforming pension boards into the state Public Retirement Investment Trust board (PRIT). It is expected to save cities and towns more than $100 million per year. Combined with the measure approved the previous week that would allow communities to opt into the state's health care system - the Group Insurance Commission - the House action could bring more than $250 million in savings to help communities reduce reliance on property taxes, according to a press release from state Rep. Eric Turkington (D-Falmouth), who represents the Cape and Islands.
"We have provided a road map for millions of dollars in savings in local budgets and I'm proud to have supported this important bill," Mr. Turkington said.
The House vote was 134 to 17. The proposal has gone to the Senate. All but one Cape legislator, Jeffrey Davis Perry (R-Sandwich), voted for the bill. Barnstable County's pension fund would also one of the funds to be taken over by the state.
Gov. Deval Patrick proposed the pension change in February as part of a Municipal Partnership Act designed to ease the burden on local property taxes.
Dukes County's $56 million contributory retirement system was deemed underperforming, according to the parameters of the bill that mandates the state takeover of any local pension fund that falls 2 percent below the state funds' rate of return over a 10-year period and has less than 65 percent of its pension obligations funded through 2028.
The Dukes County fund had a 7.83-percent rate of return for the period and is 63.8-percent funded. It is scheduled to be fully funded in 2023. The state fund's current 10-year rate of return is 10.51 percent.
Dukes County had a 14.59-percent rate of return on its pension fund last year, an increase from 7.75 in 2005, according to a the 2006 annual report of the Public Employee Retirement Administration Commission (PERAC). The county's 2006 rate of return brought its five-year average up to 8.19 percent, still short of the new requirement.
Supporters of the bill said it would save taxpayers money, deliver higher investment returns to pensioners and reduce the stress on property taxes. Critics said it unfairly penalizes local systems that are on the path to being fully funded, and that placing more assets in a $50 billion fund, despite its strong performance, sets a dangerous precedent.
Dukes County treasurer Noreen Mavro-Flanders has gone on record opposing the takeover of the county's fund. "We thought we were doing our job given what we could invest in," she told the Times in late May after a PERAC preliminary report of the local pension funds was released. Because Dukes County is one of the smaller local pension systems, it is not allowed to invest in some of the riskier hedge and venture funds under the PERAC guidelines, she said.
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 in the May 31 article in the Times. "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 a letter to Ms. Mavro-Flanders dated June 12, Mr. Connarton took issue with her comments in the Times article. Copies of the letter were sent to the Times and the four county pension board members.
In the letter Mr. Connarton said, "Let me correct your misunderstanding of my actions and that of the commission. First and foremost, as I had stated in my letter in the front of the 2006 Investment Report, I indicated that 'boards that are responsible for their management are at a crossroads.'" He said he also indicated in the report that the information was intended to be helpful to boards and all interested parties "in taking a thoughtful approach to the various reforms currently before the Legislature." He pointed out that the commission has not taken a position on the legislation, "in a clear effort to remain objective."
Mr. Connarton also corrected what he called Ms. Mavro-Flanders's misconception of his action and what the commission is attempting to do. "As you are well aware, the commission has been engaged in pension reform legislation for the past two years," he said. "This effort has been a collaborative one from the outset, with the commission and senior staff of this agency meeting with all impacted parties in an effort to achieve consensus on how best to strengthen the board's independence while providing greater oversight by the commission."
Mr. Connarton acknowledged that the legislation would require board members to file disclosure statements and attend mandatory educational seminars as well as report all fees paid to anyone who has been hired by a board, including all third party marketers. "However," he added, "I hardly think these measures equate to my seeking more control, but rather provide for sound best practice and public governance procedures. Again, the members and beneficiaries of your system will benefit from such practices and that is what the commission and I are attempting to achieve."
Mr. Connarton's full letter is available on the Times' web site, www.mvtimes.com.
Under the proposed legislation, all local governments would have a chance to appeal the state takeover. The administration of benefits will remain with the local boards.
Ms. Mavro-Flanders did not return a phone call about the most recent legislation. She maintained in her earlier comments that the county's pension fund is performing ahead of schedule and still preserving enough funds to pay its pensioners. 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."
Ms. Mavro-Flanders said 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.
The Dukes County's retirement fund has 667 active members and 205 retirees.
Rep. Jay R. Kaufman (D-Lexington), who chairs the public service committee that primarily worked on the bill, said, "Taxpayers should not be left holding the bag for investment underperformance and the funds impacted by this legislation would be over $700 million healthier if they had been invested with PRIT. It would be irresponsible to allow this kind of underperformance and stress on local property taxes to continue."