PERAC Memo #32 - 2007: Chapter 68 of the Acts of 2007

Chapter 68 of the Acts of 2007

Summary

This memo summarizes Chapter 68 of the Acts of 2007, which authorizes PERAC to annually evaluate each retirement system's funded ratio and investment performance and mandate transfer of assets to PRIT for systems that are under 65% funded and have underperformed PRIT by 2%+ annually over 10 years, subject to a limited appeal/exemption process. Boards should be aware that PERAC will conduct its initial review using January 2007 data (or the most recent valuation if none is updated by October 1, 2007) and will directly contact any systems identified as potentially subject to mandatory transfer; no immediate action is required beyond awaiting that notification, though boards should understand the appeal process and local approval requirements should their system be flagged.

Full Text

MEMORANDUM #32, 2007 M E M O R A N D U M TO: All Retirement Boards FROM: Joseph E. Connarton, Executive Director RE: Chapter 68 of the Acts of 2007 DATE: July 31, 2007 The following is a section by section analysis of Chapter 68 of the Acts of 2007, An Act To Reduce The Stress On Local Property Taxes Through Enhanced Pension Fund Investment (copy enclosed) that was recently signed by the Governor: Section 1 – amends the section of Chapter 32 that provides for state aid to participating systems in PRIT to make those systems that are involuntarily participating eligible for such assistance. Section 2 – adds paragraph c1/2 to subdivision (8) of section 22 of Chapter 32 providing that PERAC will annually assess investment performance and funded ratio of systems as of January 1st and if a system is less than 65% funded and has trailed the performance of the PRIT Fund by 2% or more on an annualized basis over the previous 10 years period, the Commission will declare the system underperforming and the system shall transfer its assets to PRIT. The PERAC notice will consist of (1) a financial report on the system (2) a description of the rights and duties of PRIM and (3) a schedule for the transfer of ownership and control of assets to PRIT. The transfer and control will be permanent. PRIM will hold the assets in trust for the participating systems and the retirement boards shall continue to administer the system. PRIM shall transfer amounts to the retirement boards for the needs of the various funds of the system. A system ordered by PERAC to transfer assets may, within 30 days, appeal that order to a Review Board consisting of the Executive Director of the PRIM Board, the Secretary of Administration and Finance or a designee, a member selected by the State Treasurer from a list of 3 provided by MACRS, and 1 member of a Municipal Union appointed by the Governor. The Review Board may grant the exemption if the system’s return exceeded that of PRIT in the last 2 year period or if the return was impacted by extenuating circumstances. The Review Board may consider the system’s management costs, risk/return ratio and other factors. The granting of an exemption will require the concurrence of three of the four members or their designees. However, any such exemption will take effect only upon the approval of a majority of the local governing body as follows: in a county, by the county commissioners; in a city having a Plan D or Plan E charter, by the city council and the manager; in any other city shall be the city council and the mayor; in a town, by the board of selectmen; in a regional retirement system by the regional retirement board advisory council and in all other districts by the governing board thereof. A judicial review of the decision of the Review Board under Chapter 30A Section 14 may take place. Section 3 – PERAC will conduct a review of the investment performance and funded ratio of the systems as of January 2007 in accordance with section 2. In the event that an updated actuarial valuation is not completed by October 1, 2007, the most recent valuation shall be used. Section 4 – Retirement Systems that would be deemed to be underperforming may transfer assets to PRIT by October 1, 2007 and retain the right to revoke participation after 5 years. Section 5 – PERAC will file an annual report with House and Senate Committees on Ways & Means and the Committee on Public Service detailing rate of return and funded ratio of each system provided that the first such report will include data from 1985. Section 6 – Local retirement boards shall consider COLAs a priority. However, such prioritization will not constitute grounds for an appeal of an order to transfer assets to PRIT. Section 7 - Section 1, 2, 3, 5, and 6 of the act shall take effect on October 1, 2007. PERAC will be contacting those systems that initial review indicates may be subject to transfer in more detail shortly.