Study: Massachusetts Public Pension Systems Unprepared for Next Recession

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Actuarial assumption adjustments clarify which funds are troubled and which are more stable

BOSTON – Almost five years after the stock-market bottom, Massachusetts public pension systems’ investments had not yet fully recovered to pre-crisis levels while liabilities increased to new records, leaving systems unprepared for the next economic downturn.

“There are very limited fiscal reserves to meet the next market slump, yet plans are not stress-tested,” said Pioneer Institute Senior Fellow on Finance Iliya Atanasov, who authored Update on Public Retirement Systems. “Most systems still have much wider funding gaps than before the financial crisis.” Update on Public Retirement Systems

The state and its retirement systems have been taking steps to accelerate funding and to bring certain actuarial assumptions to more sensible levels. Still, many systems remain in perilous condition, with contributions below Governmental Accounting Standards Board recommendations and assets barely at pre-crisis levels, even as liabilities have continued to increase.

“It is troubling to see a growing bifurcation among local pension systems,” said Atanasov, author of numerous studies on Massachusetts pension systems. “Local leaders are increasing contributions, lowering assumed rates of return and moving up their funding deadlines, while high-risk systems are becoming even more underfunded, so they are likely headed towards consolidation, municipal bankruptcy or state bailout.”

Twenty-seven public retirement funds in Massachusetts, including the state and teachers retirement systems, reduced their assumed rate of return (ARR) in 2013, but only seven of the commonwealth’s 105 public systems had an achievable ARR of 7.5 percent or below, according to the update to Pioneer Institute’s transparency website.

Leominster was the most aggressive, reducing its assumed annual returns from 8 percent to 6.75 percent.  Next in line was Wellesley, which reduced its ARR from 7.75 to 7 percent.  The state and teachers’ systems dropped their ARRs from 8.25 to 8 percent.

Woburn’s was the only system to raise its assumed return, from 8 to 8.25 percent. The increase in ARR was one of the red flags over the last year for Woburn, which also saw its funded ratio fall despite strong investment performance, in part due to a 9.2 percent jump in the average pension benefit.

Ten systems moved deadlines for full funding closer in 2013, but 22 extended their deadlines.  Of the 22, only six systems reduced their ARR, suggesting that liabilities are not being funded effectively. now includes eight tabs that provide an array of information on public pension systems in Massachusetts.  The update discontinues ranking systems on their funded ratios after concluding that current actuarial standards don’t allow for accurate comparisons.

Changes included in the update are based on feedback from retirement board members, plan administrators and finance professionals, among others.

A new scoring system, including a transparency score, will be unveiled during the first half of 2015.  Pioneer is also developing the next version of, which will offer more detailed data, better graphics and an enhanced user experience.

With the release of this update, Pioneer Institute is opening a comment period, which will run through the end of May 2015. During this time the Institute invites ideas on new functionalities or data which users might find informative, as well as thoughts on improving transparency, accountability, benefits, governance, investment practices, accounting standards, funding ratios, or any other ideas for reforming the commonwealth’s public pension systems. Please contact Iliya Atanasov directly at or write to Pioneer Institute, ATTN: Pension Reform, 185 Devonshire St, Ste. 1101, Boston, MA 02115.

About the Author:

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 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.


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.