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

The Journal of Retirement Fall 2020, jor.2020.1.075; DOI: https://doi.org/10.3905/jor.2020.1.075

Posted: 29 May 2019 Last revised: 1 Oct 2020

See all articles by Bruce Stangle

Bruce Stangle

Analysis Group, Inc.

D. Lee Heavner

Analysis Group, Inc.

Yao Lu

Analysis Group, Inc.

Alex Iselin

Analysis Group, Inc.

Priyanka Singh

Analysis Group, Inc.

Date Written: September 28, 2020

Abstract

By some estimates, underfunded public retirement systems in the United States represent liabilities that could impose $4 trillion on taxpayers and municipal employees, depending on how governments choose to respond to shortfalls resulting from a system’s inability to meet its pension obligations. While there has been a wide range of responses (and nonresponses) to state and local pension underfunding, it is instructive to examine Massachusetts, where in 2007, the state government enacted legislation to identify underperforming local systems and require them to cede control of their pension investments to the state’s Pension Reserves Investment Management (PRIM). The decade that has passed since enactment of this reform provides an opportunity to evaluate its economic impact. This article evaluates and quantifies the effect that PRIM management has had on the investment returns received by the local systems that transferred assets to PRIM after 2007, with a focus on within-system effects. Results indicate that underperforming local systems received substantial benefits from the shift to PRIM’s investment management. These findings provide lessons for other states in which locally managed pensions have fallen into a position of severe underfunding.


Full article available at https://jor.pm-research.com/content/early/2020/09/28/jor.2020.1.075 (© 2020 PMR. All rights reserved.)

Keywords: Long-term/retirement investing, pension funds, performance measurement, retirement, wealth management

JEL Classification: H75

Suggested Citation

Stangle, Bruce and Heavner, D. Lee and Lu, Yao and Iselin, Alex and Singh, Priyanka, State vs. Local Management of Pension Assets: Effects of the Massachusetts Chapter 68 Public Pension Reform (September 28, 2020). The Journal of Retirement Fall 2020, jor.2020.1.075; DOI: https://doi.org/10.3905/jor.2020.1.075, Available at SSRN: https://ssrn.com/abstract=3381988 or http://dx.doi.org/10.2139/ssrn.3381988

Bruce Stangle

Analysis Group, Inc. ( email )

111 Huntington Avenue
10th floor
Boston, MA 02199
United States

D. Lee Heavner

Analysis Group, Inc. ( email )

333 South Hope Street
27th Floor
Los Angeles, CA
United States

Yao Lu (Contact Author)

Analysis Group, Inc.

800 17th St NW
Suite 400
Washington, DC 20006
United States

Alex Iselin

Analysis Group, Inc. ( email )

111 Huntington Avenue
Tenth Floor
Boston, MA 02199
United States
6174258433 (Phone)

Priyanka Singh

Analysis Group, Inc. ( email )

111 Huntington Avenue
10th floor
Boston, MA 02199
United States

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