Consolidating Public Pension Administrations Could Save $27M Annually
REVISED STUDY FINDS THAT CONSOLIDATING ADMINISTRATION OF PUBLIC EMPLOYEE PENSION SYSTEMS COULD SAVE UP TO $27 MILLION ANNUALLY
Huge disparity in staffing levels, number of beneficiaries served by 105 existing public retirement systems
In July 2013, Pioneer released “Do We Need Them?” – a report suggesting that consolidating the administration of Massachusetts’ 105 public employee retirement systems would save up to $25 million annually in labor costs and board-member stipends that could be ploughed back into amortizing unfunded liabilities.
At the time of the report’s release, Pioneer received two criticisms. The Public Employee Retirement Administration Commission (PERAC) was critical of the report’s assumption that retirement board members receive annual stipends of $4,500. Representatives of local retirement boards also raised concerns that the report depended too heavily on the directory published by the Retired State, County and Municipal Employees Association of Massachusetts (Mass Retirees), which in their view underreported certain boards’ staffing.
“We take any potential shortcomings in our work seriously,” said Executive Director Jim Stergios. “That is why I directed our team to collect and verify data – data which even PERAC had not aggregated for the public before.”
The assumption of $4,500 stipends in the original brief had been necessitated by the fact that PERAC and the 103 local retirement systems do not provide complete and detailed information on the adoption of stipends. In communications with Pioneer staff, PERAC has recognized that it may not have complete information regarding the number of boards that have authorized $3,000 stipends.
In an effort to provide a better estimate of the actual stipends paid, the research team aggregated the most recent audit report data published by PERAC, which spans the period 2007-2012, and the number of boards reporting that they had adopted various sized stipends. We are pleased to report that PERAC has now revised its local-option page related to board members’ stipends, which can be found at http://www.mass.gov/perac/local/boardopt_15%20-%20Copy.htm, to eliminate discrepancies uncovered by our review.
Our researchers’ analysis of the audit reports also found that a number of systems were paying substantial stipend amounts to ex-officio members as well as additional amounts to board chairs. PERAC indicated that it will amend its reporting practices to pull these payments apart into separate accounts in future audit reports.
Given the inconsistency and age of some of the information, we have established that consolidating our numerous pension systems could produce stipend-related savings in the range of $1.1 to $2.2 million dollars. (The original estimate was $2.3 million.)
To verify the data regarding the 105 boards’ staff, we canvassed the website of each retirement board that has one (several systems do not have websites or do not publish an employee directory). To avoid any danger of underreporting, we took the larger of the two numbers published by individual boards and by Mass Retirees. As a result, our estimated maximum savings from staff optimization increased from about $23 million to about $25 million.
Among the 103 local, regional and agency retirement systems (the other two systems are the state and teachers’ retirement systems), the estimated median was 518 beneficiaries per staff member. The state system, which generally outperforms its local counterparts, had 2,299 beneficiaries for each staff member.
The staff data are included in the report, so readers can use them to construct their own estimates as they see fit. We will further aggregate and publish all expense data available through PERAC, including stipends and staff compensation, on our MassPensions.com transparency website. Those data are not likely to be very current because PERAC (like most retirement boards) does not publish the systems’ annual statements of financial condition.
Pioneer believes that providing this sort of clarity is simply what PERAC itself should be doing to ensure good management and to uphold the trust of taxpayers, pensioners and current employees. Delving deeper into the data, we have found that on one hand the original estimated savings from stipends may have been about $1 million too high, but on the other, that there are even larger additional savings from reductions in staff.
“The fact remains that there is a huge disparity among the 105 systems in terms of staffing levels and number of beneficiaries served,” said Pioneer’s Senior Fellow on Finance Iliya Atanasov. “Consolidation would save significant money, streamline administration and improve transparency without compromising performance.”
Proponents of the current system say it preserves local autonomy and control. But Atanasov and Miles argue that local systems actually have limited discretion. Massachusetts law specifies uniform benefits, contribution requirements, accounting and funding structures for all public systems. Most remaining autonomous decisions – so-called “local options” – have to be approved by the local legislative body, which is a more appropriate forum for such important matters as cost-of-living adjustments than an unaccountable retirement board.
When it comes to more global management decisions such as investment choices, the Group Insurance Commission, which manages public-employee healthcare benefits, offers a model for how to incorporate input from all major stakeholders. The 15-member GIC board includes representatives of major public employee unions, state and local governments, and retirees.
Pioneer Institute recently unveiled the MassPensions.com data accessibility tool, that provides year-by-year comparative data and ratings for the performance of each of the commonwealth’s more than 100 retirement systems. Other recent pension research includes: Improving the Investment Performance of Massachusetts Pension Funds, and Fiscal Implications of Massachusetts’ Retirement Boards’ Investment Returns.
About the Authors:
Iliya Atanasov is Pioneer’s Senior Fellow on Finance, leading the research tracks on pension management, data analysis and municipal performance. He is a PhD candidate in Political Science and Government and MA candidate in Statistics as well as a former Presidential Fellow at Rice University. He also holds BAs in Business Administration, Economics and Political Science/International Relations from the American University in Bulgaria.
Casey Miles is a QA Analyst in the Leadership Development Program at Eze Castle Software. She holds a BA (Hon.) in Biology from Boston College.
About Pioneer
Pioneer Institute is an independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.
