Underperforming local pension plans in Massachusetts that transferred management of their assets to the $75 billion Massachusetts Pension Reserves Investment Management saw substantial benefits in doing so, research shows.
Massachusetts passed legislation in 2007 requiring underfunded and underperforming local plans within the state to transfer management of their assets to MassPRIM. A report from Analysis Group tracked the performance of the plans up to fiscal year 2016, and found that local Massachusetts pension plans that transferred all or a portion of assets to the Boston-based statewide system experienced an increase of 8.9 basis points in annual gross returns for every 10% of assets transferred.
"These systems benefited almost by a percent a year," said Lee Heavner, a managing principal with Analysis Group and co-author of the report, in a phone interview. "It's been impressive. It gives an example to other states that they may want to follow."
Mr. Heavner said that the local plans that are under MassPRIM's wing also benefit from the state plan's "good performance" and size, which "comes with advantages" such as "reduced expenses."
In addition, underperforming local systems that transferred assets to MassPRIM after the state passed legislation in 2007 requiring them to do so collectively gained $321 million, or nearly 7% of their total unfunded liability in 2016.
The report also found that the annualized return for MassPRIM for the five years ended June 30, 2016, was 9.2%. In comparison, the annualized five-year return among the 13 local systems with no assets managed by MassPRIM ranged from 5.9% to 9.8%, with a mean of 8.2% and a median of 8.1%.
Meanwhile, of the 24 additional systems that had less than 25% of their assets managed by PRIM as of 2016, the annualized five-year return ranged from 7.2% to 11%, with a median return of 9% and a mean of 9.1%.