HomeMy Public PortalAbout01-22-2013 BFO repo_1 Town of Watertown
Committee of the Budget & Fiscal Oversight
Meeting: January 14, 2013
Report: January 22, 2013
The Committee convened on January 14, 2013 at 6 pm in the Town Council Chambers. Present
at the meeting were Vincent Piccirilli, Chair; Angeline Kounelis, Vice-Chair; Cecilia Lenk,
Secretary; Town Manager Michael Driscoll; and Town Auditor Thomas Tracy(who is also an
ex-officio member of the Retirement Board). The following members of the Watertown
Contributory Retirement Board(WCRB)were present: Chairman Thomas V. Thibaut, Jr., John
T. Loughran, and Kathleen Kiely-Becchetti,plus WCRB attorney Thomas Gibson.
The purpose of the meeting was to discuss the following issues:
1. A request from the WCRB to recommend approval by the Town Council of the following
three local options included in Chapter 176 of the Acts of 2011 (see attached letters from the
WCRB dated January 27, 2012 and May 29, 2012):
• Sections 29 & 30 to raise the minimum monthly allowance of member-survivors from
$250 to $500.
• Section 48 to establish a minimum annual payment of$15,000 for retirees with 25 years
of services.
• Section 34 to increase the annual stipend for retirement board members from $3,000 to
$4,500.
2. To make a recommendation on the WCRB funding schedule for the Fiscal Year 2014 budget.
Local Obtions:
Mr. Piccirilli opened the meeting with a statement to the Committee describing the recent history
of local option requests and his perspective (see attached). Mr. Gibson outlined the WCRB's
position and asked the Committee to approve the three local options before it. There was
additional discussion, with Mr. Thibaut and Mr. Gibson urging the Committee to adopt Sections
29 & 30 and Section 48 as a way to increase the pensions for members with the lowest payments.
Ms. Kiely-Becchetti made a statement urging Committee members to recommend Sections 29 &
30 for approval. Mr. Thibaut added that additional educational requirements and work load was
the reason for the request of a 50% increase in the annual stipend to WCRB members.
The Committee members noted that addressing the Town's unfunded pension and OPEB
liabilities is a priority of the Town Council, and has been for a number of years. As of January 1,
2012 the WCRB unfunded pension liability was $70,613,129 (59%unfunded) and the OPEB
(Other Post-Employment Benefits e.g. health benefits for retirees) liability is $154M as of July 1,
2011. It was also noted that these unfunded liabilities are continuing to grow. However, Mr.
Driscoll stated that the Town has been working to pay down the unfunded pension liability by
2022 and is on track to do so with the current funding schedule.
Page 1 of 2
Although the financial impact of each of these three local options may seem minimal, the
Committee members agreed that:
• Approving these local option increases is not in accordance with the Town Council's
policies and actions to reduce the unfunded pension liability.
• There was no compelling evidence of an inequity in Chapter 32 that these local options
sought to correct which would justify overriding the Town Council policies.
Councilor Kounelis also noted that adopting these local options could set a precedent for
granting future requests for pension payment increases.
The Committee voted as follows on the local options requests:
1. Voted unanimously to recommend that the Town Council not adopt Sections 29 & 30 of
Chapter 176 of the Acts of 2011.
2. Voted unanimously to recommend that the Town Council not adopt Section 48 of
Chapter 176 of the Acts of 2011.
3. Voted unanimously to recommend that the Town Council not adopt Section 34 of
Chapter 176 of the Acts of 2011.
Pension Funding Schedule for FY2014:
Mr. Tracy led the discussion, and stated that the WCRB received a January 1, 2012 actuarial
valuation from PERAC (see attached miscellaneous correspondence from Mr. Driscoll dated
August 10, 2012). Mr. Lamenzo from PERAC said that because the Board is soliciting bids for a
complete actuarial revaluation in 2013, and because of the aggressive funding schedule that
Watertown has, the Board could pick a number between the two PERAC alternatives of$11 AM
(a$2.1M FY14 annual increase) and$9.7M (a$374K FY14 annual increase).
Mr. Driscoll stated that Alternative#1 with a $2.1M annual increase, while keeping to the 2022
schedule, would have a negative effect on the Town's budget in FY2014. He noted that
Alternative #2 would add three years to the schedule and significantly increase costs to the
community in the long run. Mr. Driscoll proposed an alternative of a$1.2M annual increase in
FY2014 which would also keep Watertown on the 2022 schedule. Mr. Tracy provided a handout
showing the funding options from PERAC and the Town Manager, as well as a straight line
forecast(see attachment).
The Retirement Board Chairman and the Town Manager both expressed a willingness to work
collaboratively to develop a funding schedule.
After discussing the options, the Committee voted unanimously to endorse the Town Manager's
forecast with a FY2014 contribution of$10.6M (a $1.2M annual increase) and a funding
schedule of 2022 as being in the best interest of Watertown, and respectfully requested that the
Watertown Contributory Retirement Board take this into consideration when they meet on
Wednesday January 16, 2013 to vote on a funding schedule for FY2014.
Committee adjourned 7:26 pm
Respectfully submitted,
Cecilia Lenk, Secretary
Page 2 of 2
January 14, 2013
Before we begin discussion, I would like to provide some historical perspective on the matters
before this Committee tonight.
On December 11, 2007, the Town Council unanimously adopted FY2009 Budget Policy
Guidelines I.C. Post-emplovment benefits: "In order to achieve long-term financial stability and
meet the Town's obligations to its employees and retirees, the Council and Town Manager will
work to address the Town's unfunded pension liability and other post-employment benefits
(OPEB). Dialogue should continue with the Retirement Board on the options for investing
pension funds, including through the Pension Reserves Investment Trust. The Council and
Town Manager will look for opportunities to make additional transfers to the OPEB stabilization
fund."
On January 1, 2008, the WCRB unfunded pension liability was $43,511,304 (69% funded)with
a schedule to be fully funded by 2017.
On September 29, 2009, this Committee voted to recommend that the Town Council not accept
the provisions of Chapter 358 of the Acts of 2008 for discretionary pension increases for four
retirees. This Committee found that there was no satisfactory explanation as to how the
appropriation of these additional funds would benefit the taxpayers of Watertown, or that there
was an inequity to be corrected. The Town Council voted unanimously to reject this local
option.
On January 1, 2010, the WCRB unfunded pension liability was $66,530,338 (57% funded)with
a schedule to be fully funded by 2017.
On March 9, 2010, the WCRB, in agreement with the Town Manager, voted to increase the
funding schedule from 2017 to 2022, to accommodate the losses that the retirement fund suffered
in the financial crisis.
On June 1, 2011 this Committee voted to recommend that the Town Council not accept the
provisions of Section 19 of Chapter 188 of the Acts of 2010 for a discretionary COLA pension
increase for all retirees. At the time, discussion focused on the significant cost this would add to
the unfunded pension liability which, as the WCRB's actuary pointed out, would continue to
grow with compounding over time, and how this works against the Town Council's Budget
Priority Guideline which seeks ways to decrease this liability. This Committee found that this
action would be detrimental to the taxpayers of Watertown. The Town Council voted
unanimously to reject this local option.
On June 1, 2011 this Committee voted to recommend that the Town Council accept the
provisions of Section 28 of Chapter 131 of the Acts of 2010. This Committee found that there
was a valid public policy rationale to make a correction for a small number of individuals who
were unable to take advantage of options available to retirees after 1996, and also the fact that
the liability on this option is finite and will eventually disappear. The Town Council voted
unanimously to accept this local option.
Page 1 of 2
On January 1, 2012, the WCRB unfunded pension liability was $70,613,129 (59% funded)with
a schedule to be fully funded by 2022.
On June 21, 2012, the Town Council voted unanimously to adopt the FY2013 budget which
contained an additional $250,000 payment over the required funding schedule to apply to the
unfunded pension liability.
On July 17, 2012 the Town Council voted unanimously to adopt Resolution R-2012-47 to create
the "Unfunded Pension Liability Stabilization Fund" and transfer$750,000 into this fund, with
the intention to continue paying an additional $250,000 per year over the required funding
schedule to apply to the unfunded pension liability.
On December 11, 2012,the Town Council voted unanimously to adopt Resolution R-2012-72
Watertown's Ongoing Budget Policy Guidelines I.C. Pension Liabilitv and Other Post
Emplovment Benefits: "In order to achieve long term financial stability, meet the Town's
obligations to its employees and retirees, and maintain favorable bond ratings, the Council, the
Retirement Board and Town Manager will work to address the Town's unfunded pension
liability and other post-employment benefits (OPEB). As was done with the unfunded Pension
Liability, create a long-range financial plan for addressing the unfunded OPEB liabilities,
including the converting the OPEB stabilization fund to an OPEB Trust Fund. Continue dialog
with Retirement Board and State representatives to consider options for pension reforms for new
hires."
There are three separate local option requests from the WCRB before this Committee tonight.
1. Sections 29 & 30 of Chapter 176 of the Acts of 2011 would double the minimum
monthly allowance for member-survivors from$250 to $500. There are five survivors
that would be eligible for this.
2. Sections 48 of Chapter 176 of the Acts of 2011 would establish a minimum annual
payment of$15,000 for retirees with 25 years of service. There are three retirees that
would be eligible for this.
3. Sections 34 of Chapter 176 of the Acts of 2011 would increase the annual stipend for
Retirement Board by 50%to $4,500, to be paid out of investment returns. All five
members of the WCRB would be eligible for this.
As with past local option requests, I ask the Committee to consider two key questions regarding
these requests:
• What is the public policy justification for the request, and would adopting the local
option correct an inequity or benefit the taxpayers of Watertown?
• Is there some overriding public policy for adopting a local option which would increase
the unfunded pension liability, that would justify overriding the policy of the Town
Council to seek ways to reduce this unfunded liability as quickly as possible?
Vincent J. Piccirilli, Jr.
Chair, Committee of the Budget and Fiscal Oversight
Page 2 of 2
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WATERTOWN CONTRIBUTORY RETIREMENT FUNDING OPTIONS "Tom_ I off_FISCAL PERAC ANNUAL PERAC ANNUAL
TOW MANAGERS
ANNUAL STRAIGHT E ANNUAL
YEAR I ALTERNATIVE 1 INCREASE I ALTERNATIVE 2 INCREASE I FORECAST INCREASE FORECAST INCREASE
2013 $ 9,335,898 $ 9,335,898 $ 9,335,898 $ 9,335,898
2014 $ 11,476,061 $ 2,140,163 $ 9,710,823 $ 374,925 $ 10,623,496 $ 1,287,598 $ 10,300,783 $ 964,885
2015 $ 11,998,750 $ 522,689 $ 10,117,428 $ 406,605 $ 11,911,094 $ 1,287,598 $ 10,300,783 $ -
2016 $ 12,545,166 $ 546,416 $ 10,541,466 $ 424,038 $ 12,683,652 $ 772,558 $ 10,300,783 $ -
2017 $ 13,116,962 $ 571,796 $ 10,983,631 $ 442,165 $ 13,302,428 $ 618,776 $ 10,300,783 $ -
2018 $ 13,715,122 $ 598,160 $ 11,444,770 $ 461,139 $ 13,908,934 $ 606,506 $ 10,300,783 $ -
2019 $ 14,340,864 $ 625,742 $ 11,925,683 $ 480,913 $ 14,543,397 $ 634,463 $ 10,300,783 $ -
2020 $ 14,995,463 $ 654,599 $ 12,427,230 $ 501,547 $ 15,207,110 $ 663,713 $ 10,300,783 $ -
2021 $ 15,680,251 $ 684,788 $ 12,950,304 $ 523,074 $ 15,901,422 $ 694,312 $ 10,300,783 $ -
2022 $ 16,396,624 $ 716,373 $ 13,495,841 $ 545,537 $ 16,627,749 $ 726,327 $ 10,300,783 $ -
2023 NORMAL COST $ 14,064,815 $ 568,974 NORMAL COST+APPROX. $250,000 $ 10,300,783 $ -
2024 NORMAL COST $ 14,658,245 $ 593,430 NORMAL COST $ 10,300,783 $ -
2025 NORMAL COST $ 15,277,195 $ 618,950 NORMAL COST $ 10,300,783 $ -
2026 NORMAL COST NORMAL COST NORMAL COST $ 10,300,783 $ -
2027 NORMAL COST NORMAL COST NORMAL COST $ 10,300,783 $ -
2028 NORMAL COST NORMAL COST NORMAL COST $ 10,300,783 $ -
2029 NORMAL COST NORMAL COST NORMAL COST $ 10,300,783 $ -
2030 NORMAL COST NORMAL COST NORMAL COST $ 10,300,783 $ -
2031 NORMAL COST NORMAL COST NORMAL COST $ 10,300,783 $ -
2032 NORMAL COST NORMAL COST NORMAL COST $ 10,300,783 $ -
2033 NORMAL COST NORMAL COST NORMAL COST $ 10,300,783 $ -
2034 NORMAL COST NORMAL COST NORMAL COST NORMAL COST
2035 NORMAL COST NORMAL COST NORMAL COST NORMAL COST
$ 133,601,161 <To4al COS+ � $ 156,933,329 5 134,045,180 $ 215,351,558
INCLUDES WATERTOWN HOUSING AUTHORITY
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INtertomn Cmltriblitorp 3.trttrelnrnt 390arb
_ Administration Building
,m 149 MAIN STREET - P.O. BOX 199
WATERTOWN, MA 02471-0199
TEL (617) 972-6456 - TOLL FREE (888) 972-6456 - FAX (617) 923-3531
www.ivatertorvnret irenient.coni
'I HOMAS V. THI➢AT, JR., Chairman DOMENIC ARONE, Elected Member
'I HOMAS J. TRACY, Ex-O➢lcio JAMES 1. BEAN, Appointed Member
JOHN 'r. LOUGHRAN, Appointed Member
January 27 , 2012
Watertown Town Council
Administration Building
Watertown , MA 02472
RE: Chapter 176 of the Acts of 2011
Board Member Stipend
Dear Honorable Council Members :
As the Council is undoubtedly aware, on November 18 , 2011 , Governor Patrick
signed into law Chapter 176 of the Acts of 2011 , An Act Providing for Pension Reform
and Benefit Modernization ("the Act") .
This law substantively changes the retirement plan for public employees in
Massachusetts by adjusting retirement benefits and by providing significant
enhancements to the governance and operations of the Commonwealth's retirement
boards . Although the retirement benefit changes are mostly prospective for members
entering the retirement system after April 2 , 2012 , it has been reported that changes
enacted by this law will result in future savings to the Commonwealth of $5 billion
dollars .
The Public Employee Retirement Administration Commission (" PERAC") has issued
several advisories regarding the implementation of the new law which , except as
otherwise provided in the Act, will become effective on February 16 , 2012 . Attached
to this letter please find a series of memoranda summarizing the many changes to
the law .
With reference to governance of retirement boards , the Council will note that the Act
now requires that Board members follow enhanced procurement requirements and
apply increased fiduciary oversight of the retirement system 's investments . In
addition , Board members must undergo mandatory education and training, and
must file annual statements of financial interests and acknowledgements of
compliance with the conflict of interest and retirement laws . Penalties for non-
compliance are substantial, and non -compliance may be considered a breach of
fiduciary obligations for which a Board member would be personally liable .
January 27 , 2012
Page 2
In recognition of the increased responsibilities and accountability of Board members,
the Legislature has provided a local option amendment to G . L. c . 32 § 20 (6) which
provides a stipend for Board members in an amount "not less than $ 3 , 000 and not
more than $4 , 500 per year. " ' Under the previous law, members of the Watertown
Retirement Board currently receive a stipend of $3 ,000 .
Payment of the stipend is made from "funds under the control of the board," and is
funded from the system's return on investments . Nevertheless, the increase to the
Board members' stipend is dependent upon acceptance of the law by a vote of the
legislative body .
Although action by the local retirement board is not required in this process, the
Watertown Retirement Board supports this increase , and respectfully requests that
the Town Council recognize the increased responsibilities of members of the Board by
voting to accept this local option so as to provide a stipend to members of the Board
in the amount of $4 , 500 per year.
If there is further information the Council would require, the Board would be pleased
to provide same .
Since�r ly, / n
Thomas V. Thibaut, Jr. , Chairman
/ bas
enclosures : PERAC Memo # 34 / 2011
PERAC Memo # 35 / 2011
PERAC Memo # 36/ 2011 (w/ attachment)
Section 34 of Chapter 176 of the Acts of 2011 provides as follows:
"Said section 20 of said chapter 32, as so appearing, is hereby farther amended by striking out subdivision (6) and inserting
in place thereof the following subdivision :-
(6) Retirement Board Members Compensation.fhe elected and appointed members of a city, town, county, regional, district
or authority retirement board upon the acceptance of the appropriate legislative body shall receive a stipend; provided,
however, that the stipend shall not be less than $3,000 per year and not more than $4,500 per year; provided, further, that the
stipend shall be paid from funds under the control of the board as shall be determined by the commission; and provided,
further, that an ex-officio member of a city, town, county, district or authority retirement board upon the acceptance of the
appropriate legislative body shall receive a stipend of not more than $4,500 per year in the aggregate for services rendered in
the active administration of the retirement system ."
PERAC Memo # 34 / 2011
COMMONWEALTHPERAC
OF MASSACHUSETTS PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION COMMISSION
DOMENIC J. F. RUSSO, Chairman JOSEPH E. CONNARTON, EreculNe Director
Auditor SUZANNE M. BUMP I ALAN MACDONALD I JAMES M. MACHADO I DONALD R. MARQUIS I ROBERT B. McCARTHY I GREGORY R. MENNIS
MEMORANDUM
TO : All Retirement Boards.
_ M
FROM: Jios ph E. C.onnarton, Executive Director
RE: Placement Agent Policy
DATE: November 29, 2011
The Public Employee Retirement Administration Commission (PERAC) is implementing the
attached Policy which sets forth disclosure requirements regarding "placement agents" that act as
a "finder, solicitor, marketer, consultant, broker or other intermediary in relation to the
investment of assets of Massachusetts public pension systems, including any person or entity
which provides proactive consultant services concerning the changing political and policy
environment in New England and nationally as it relates to retirement plans, notwithstanding the
description of such services as informational consulting services only not involving the referral
of investment advisory services PERAC adopted this Policy following a Public Hearing and is
taking this action in the wake of the approval of Pension Reform legislation which has altered the
Commission' s approach to establishment of revised Investment Regulations,
The Commission will develop and forward appropriate forms regarding the requirements set
forth in the Policy to the boards prior to January 1 , 2012 .
Pursuant to that policy boards and managers must meet the following requirements or take the
following actions : .
Manager Resuonsibilities
Each manager is responsible for providing the following information to the board and PERAC in
conjunction with responding to an RFP or solicitation, commencing discussions relative to
amending an agreement between the manager and the board or entering into a discussion, other
than informal general discussions, that may lead to any of the above referenced actions :
a. a statement whether the manager or any principal, employee, agent or affiliate has
compensated or agreed to compensate, directly or indirectly any person or entity
to act as a placement agent in connection with investment by the Massachusetts
public pension systems;
FIVE MIDDLESEX AVENUE, SUITE 304 ] SOMERVILLE, MA 02145
PH 617666 44461 FAX 617 628 4002 1 TTY 617591 8917 1 WWW.MASS.GOV/PERAC *\ �' UU
MEMORANDUM - Page Two
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE : Placement Agent Policy
DATE: November 29, 2011
b. a resume for each placement agent detailing the person' s education, professional
designations, regulatory licenses and investment and work experience. If any
such person is a current or former member of a retirement board, employee or
consultant or immediate family of such a person that fact_ should be specifically
noted;
c. a description of any and all compensation of any kind provided or agreed to be
provided to a placement agent and/or entity acting as a placement agent in
connection with investment by Massachusetts' public pension systems, including
the nature, timing and value thereof;
d. a description of the services to be performed by the placement agent and/or entity
acting as a placement agent and a statement as to whether the placement agent is
used by the manager with all prospective clients or only a subset of clients or only
Massachusetts public pension fimd clients;
e, a written copy of any and all agreements between the manager and the placement
agent and/or entity acting as a placement agent in connection with investment by
Massachusetts ' public pension systems;
f. in the event that any current or former Massachusetts public pension system board
members, employees, consultants or other service providers have suggested the
retention of the placement agent, the names of any current or former
Massachusetts public pension system board members, employees, consultants or
other service providers who suggested the retention of the placement agent;
i
g. a statement that the placement agent has a minimum of three years experience in
the investment field; and,
h, a statement that the placement agent and/or entity acting as a placement agent is
registered with the Securities and Exchange Commission or the Financial Industry
Regulatory Authority, or, if appropriate, the Commodity Futures Trading
Commission and the details of such registration.
MEMORANDUM - Page Three
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE: , Placement Agent Policy
DATE: November 29, 2011
Board Responsibilities
The retirement board is responsible for providing the following to managers and prospective
managers :
a. a copy of this policy and appropriate PERAC forms as part of the selection
process for investment or engagement;
b. a copy of this policy and appropriate PERAC forms at the time discussions are
initiated with respect to amendment of agreements or other actions noted above;
a reviewing placement agent and/or entity acting as a placement agent information
disclosures, in detail, as part of the due diligence process;
d, compiling an annual report containing the names and amount of compensation
agreed to be provided to each placement agent and/or entity acting as a placement
agent by each manager as reported in the placement agent information disclosures
and disclosing the report to the public by posting on the board website and/or
posting in a readily accessible site at the retirement board offices;
e. reporting to PERAC any material violations of this policy as soon as practicable
after discovery of such violations.
The policy provides for penalties for violation of the policy as follows:
Penalties
PERAC shall withhold regulatory approvals and acknowledgments if:
a. the placement agent and/or entity acting as a placement agent information
disclosure or other information reveals that the placement agent and/or entity
acting as a placement agent that the manager has used is not registered with the
Securities and Exchange Commission or the Financial Industry Regulatory
Authority or, if appropriate, the Commodity Futures Trading Commission; and,
b. the placement agent and/or entity acting as a placement agent information
disclosure or other information reveals that the placement agent does not possess
three years experience in the investment field.
MEMORANDUM - Page Four
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE: Placement Agent Policy
DATE: November 29, 2011
PERAC shall prohibit any manager or placement agent from soliciting new investments from
any retirement board for a period to be determined by the Commission after the manager or
placement agent has committed a material violation of this regulation.
In addition the policy requires that all contracts with investment managers contain the following
terms:
Contract Terms
Each contract and amendment to an existing contract as of January 1 , 2012 shall secure the
agreement of the manager in the final written agreement between the board and the manager to
provide the board with the following remedies in the event the manager knew or should have
known of any material inaccuracy or omission in the placement agent information disclosure or
any other violation of this policy:
a. whichever is greater, the reimbursement of any management or advisory fees paid by the
board for the prior two years or an amount equal to the amounts paid or promised to be
paid to the placement agent as a result of the board investment;
b. the authority to immediately terminate the investment management contract or other
agreement with the manager without penalty, to withdraw without penalty from a limited
partnership, limited liability company or other investment vehicle, or to cease making
further capital contributions (and paying any fees on these recalled commitments) to the
limited partnership, limited liability company or other investment vehicle without
penalty; and,
c. provisions requiring the manager to annually inform PERAC and the board of any
arrangements in oral or in writing, for compensation or other benefit received or expected
to be received by the manager or a related person from others in connection with the
managers ' services to the board or any other client, provisions requiring the manager to
annually disclose to PERAC and the retirement board any compensation, in whatever
form, paid or expected to be paid, directly or indirectly, by the manager or a related
person to others in relation to the managers' services to the board or any other client, and
provisions requiring the manager to annually disclose to PERAC and the board in writing
any conflict of interest the manager may have that could reasonably be expected to impair
the manager' s ability to tender unbiased and objective services to the board.
Each contract and amendment to an existing contract as of January 1 , 2012 shall secure the
agreement of the manager in the final written agreement between the board and the manager that
MEMORANDUM - Page Five
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE: Placement Agent Policy
DATE: November 29, 2011
the manager shall be solely responsible for, and the board shall not pay (directly or indirectly),
any fees, compensation or. expenses for any placement agent used by the manager.
Camnaien Contributions
In addition the policy requires the reporting of Campaign Contributions made to candidates for
retirement board membership:
Candidates for board membership shall disclose to the board and the Commission the names of
those who have contributed that are active in the investment field, including placement agents,
and the amounts of campaign contributions made to the candidate relating to the member' s
campaign as Treasurer, if applicable, or his campaign to become a member of the board.
Effective Date
This policy applies to all agreements with managers entered into after January 1 , 2012 or
agreements to amend existing agreements made after that date (including by vote, consent or
waiver by limited partners/investors or a subset of the limited partners/investors or separate side
agreement or agreement to amend a side agreement) to continue, terminate or extend the term of
the agreement or investment period, increase the commitment of finds by the pension system or
increase or accelerate the fees or compensation payable to the manager.
The Commonwealth of Massachusetts
PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION COMMISSION
5 Middlesex Avenue, Suite 304
Somerville, MA 02145
(617) 666-4446
POLICY NO. : 114
PERAC Placement Aeents Policv
I : Definitions
II: Manager Responsibilities
III : Board Responsibilities
IV: Penalties
V: Contract Terms
Vl: Campaign Contributions
VII : Effective Date
I: Definitions
The following words and phrases as used in this policy, unless a different meaning
is plainly required by context, shall have the following meanings :
"Manager" , investment partners with whom retirement boards do business,
including, but not limited to, general partners, investment managers , sponsors of
hedge funds , private equity funds , real estate funds , infrastructure funds and any
entity which a retirement board delegates discretionary investment authority.
"Placement agent" , any person or entity hired, employed , engaged, retained by or
acting on behalf of or otherwise receiving remuneration from a manager or another
placement agent as a finder, solicitor, marketer, consultant, broker or other
intermediary in relation to the investment of assets of Massachusetts public
pension systems, including any person or entity which provides proactive
consultant services concerning the changing political and policy environment in
New England and nationally as it relates to retirement plans , notwithstanding the
description of such services as informational consulting services , only not
involving the referral of investment advisory services, provided, however, this
policy shall not apply with respect to in-house employees of investment managers .
II : Manager Responsibilities
(1) Each manager is responsible for providing the following information to the
board and PERAC in conjunction with responding to an RFP or solicitation,
t
commencing discussions relative to amending an agreement between the manager
and the board, or entering into discussion, other than informal, general
discussions , that may lead to any of the above referenced actions.
a. a statement whether the manager or any principal, employee, agent
or affiliate has compensated or agreed to compensate, directly or
indirectly any person or entity to act as a placement agent in
connection with investment by the Massachusetts public pension
systems ;
b. a resume for each placement agent detailing the person' s education,
professional designations , regulatory licenses and investment and
work experience. If any such person is a current or former member
of a retirement board, employee or consultant or immediate family
of such a person that fact should be specifically noted;
c. a description of any and all compensation of any kind provided or
agreed to be provided to a placement agent and/or entity acting as a
placement agent in connection with investment by Massachusetts '
public pension systems, including the nature, timing and value
thereof;
d. a description of the services to be performed by the placement agent
and/or entity acting as a placement agent and a statement as to
whether the placement agent is used by the manager with all
prospective clients or only a subset of clients or only Massachusetts
public pension fund clients ;
es a written copy of any and all agreements between the manager and
the placement agent and/or entity acting as a placement agent in
connection with investment by Massachusetts ' public pension
systems ;
f. in the event that any current or former Massachusetts public pension
system board members , employees, consultants or other service
providers have suggested the retention of the placement agent, the
names of any current or former Massachusetts public pension system
board members, employees, consultants or other service providers
who suggested the retention, of the placement agent;
g. a statement that the placement agent has a minimum of three years
experience in the investment field; and,
z
h. a statement that the placement agent and/or entity acting as a
placement agent is registered with the Securities and Exchange
Commission or the Financial Industry Regulatory Authority, or, if
appropriate, the Commodity Futures Trading Commission and the
details of such registration.
III: Board Responsibilities
(1) The retirement board is responsible for providing the following to managers
and prospective managers :
a. a copy of this policy and appropriate PERAC forms as part of the
selection process for investment or engagement;
b. a copy of this policy and appropriate PERAC forms at the time
discussions are initiated with respect to amendment of agreements of
other actions noted above ;
c. reviewing placement agent and/or entity acting as a placement agent
information disclosures , in detail, as part of the due diligence
process ;
d. compiling an annual report containing the names and amount of
compensation agreed to be provided to each placement agent and/or
entity acting as a placement agent by each manager as reported in
the placement agent information disclosures and disclosing the
report to the public by posting on the board website and/or posting in
a readily accessible site at the retirement board offices ;
e. reporting to PERAC any material violations of this policy as soon as
practicable after discovery of such violations .
IV: Penalties
(1) PERAC shall withhold regulatory approvals and acknowledgments if:
a. the placement agent and/or entity acting as a placement agent
information disclosure or other information reveals that the
placement agent and/or entity acting as a placement agent that the
3
manager has used is not registered with the Securities and Exchange
Commission or the Financial Industry Regulatory Authority or, if
appropriate, the Commodity Futures Trading Commission;
b. the placement agent and/or entity acting as a placement agent
information disclosure or other information reveals that the
placement agent does not possess three years experience in the
investment field.
(2) PERAC shall prohibit any manager or placement agent from soliciting new
investments from any board for a period to be determined by the Commission after
the manager or placement agent has committed a material violation of this
regulation .
V : Contract Terms
(1) Each contract and amendment to an existing contract as of January 1 , 2012
shall secure the agreement of the manager in the final written agreement between
the board and the manager to provide the board with the following remedies in the
event the manager knew or should have known of any material inaccuracy or
omission in the placement agent information disclosure or any other violation of
this policy:
a. whichever is greater, the reimbursement of any management or advisory
fees paid by the board for the prior two years or an amount equal to the
amounts paid or promised to be paid to the placement agent as a result of
the board investment;
b. the authority to immediately terminate the investment management contract
or other agreement with the manager without penalty, to withdraw without
penalty from a limited partnership, limited liability company or other
investment vehicle, or to cease making further capital contributions (and
paying any fees on these recalled commitments) to the limited partnership,
limited liability company or other investment vehicle without penalty; and,
c. provisions requiring the manager to annually inform PERAC and the board
of any arrangements in oral or in writing, for compensation or other benefit
received or expected to be received by the manager or a related person from
others in connection with the manager' s services to the board or any other
client, provisions requiring the manager to annually disclose to PERAC and
the board any compensation, in whatever form, paid or expected to be paid,
4
directly or indirectly, by the manager or a related person to others in
relation to the manager' s services to the board or any other client, and
provisions requiring the manager to annually disclose to PERAC and the
board in writing any conflict of interest the manager may have that could
reasonably be expected to impair the manager' s ability to render unbiased
and objective services to the board.
Each contract and amendment to an existing contract as of January 1 , 2012 shall
secure the agreement of the manager in the final written agreement between the
board and the manager that the manager shall be solely responsible for, and the
board shall not pay (directly or indirectly), any fees, compensation or expenses for
any placement agent used by the manager.
VI: Campaign Contributions
(1) Candidates for board membership shall disclose to the board and the
Commission the names of those who have contributed that are active in the
investment field, including placement agents, and the amounts of
campaign contributions made to the candidate relating to the member' s
campaign as treasurer, if applicable, or his campaign to become a member
of the board .
VII: Effective Date
This policy applies to all agreements with managers entered into after January 1 ,
2012 or agreements to amend existing agreements made after that date (including
by vote, consent or waiver by limited partners/investors or a subset of the limited
partners/investors or separate side agreement or agreement to amend a side
agreement) to continue, terminate or extend the term of the agreement or
investment period, increase the commitment of funds by the pension system or
increase or accelerate the fees or compensation payable to the manager.
VIII : Statement of Intent
In promulgating this policy PERAC is not endorsing or discouraging the use of
placement agents.
5
PERAC Memo # 35 / 2011
FERAC
i COMMONWEALTH OF MASSACHUSETTS PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION COMMISSION
DOMENIC J. F. RUSSO, Chatrman JOSEPH E. CONNARTON, Execmfve Director
Auditor SUZANNE M. BUMP I ALAN MACDONALD I JAMES M. MACHADO I DONALD R. MARQUIS I ROBERT B. McCARTHY I GREGORY R. MENNIS
MEMORANDUM
TO: All Retirement Boards
FROM: Jo ph E. Connarton, Executive Director
RE: Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Governance Provisions)
DATE: December 2, 2011
As you know, Governor Deval Patrick has signed into law Chapter 176 of the Acts of
2011 , "An Act Providing for Pension Reform and Benefit Modernization". There are
many aspects to this new law some of which impact the pension benefit structure and
others which impact retirement board operations . The Public Employee Retirement
Administration Commission (PERAC) is taking a two pronged approach to implementing
the statute , Under separate cover we will provide you with a Memorandum outlining
those provisions of Chapter 176 that bear primarily on benefit structure. This
Memorandum will focus on those, provisions dealing with retirement board operations or .
Governance, Please note that these Memos are introductory in nature. The Commission
urges you to review the new law in detail .
Governance
A number of sections in Chapter 176 focused on the operations of retirement boards .
These sections are an outgrowth of the Commission ' s efforts in working with retirement
boards and their representatives, legislators and governance experts over several years .
Fundamentally, this approach can be broken down into several categories — Investment
Regulation, Board Member Eligibility/Education/Reporting, Procurement Reform and
Enforcement. This Memorandum will briefly review each section bearing on these
general categories . During the course .of the next several months PERAC, through the
issuance of other Memos and Forms, will provide retirement boards with further.
direction.
FIVE MIDDLESEX AVENUE, SUITE 304 1 SOMERVILLE, MA 02145 .
PH 617 666 4446 1 FAX 617 628 40021 TTY 617 591 8917 1 4VW W.MASS.GOV/PERAC
:� UU
MEMORANDUM - Page Two
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE: Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Governance Provisions)
DATE: December 2, 2011
Although a number of the sections of Chapter 176 take effect pursuant to dates .
specifically set forth in the new law, the Governance sections, with one exception noted
below, become effective on February 16, 2012 .
Investment Regulation
Section 2 and Section 40 of Chapter 176 dramatically alter the investment oversight
function of PERAC. This is in keeping with the evolution of board practice in this area
and with an added focus on Procurement reflected elsewhere in the new law.
PERAC will no longer be providing "Exemptions" or "Waivers" focused on individual
investment managers . Under Chapter 176 boards will be required to submit
documentation primarily dealing with certifying that the Procurement Process has been
followed, various disclosures from the vendor, certifications from the vendor and each
board member that the process was not compromised, a certification that the investment
is not prohibited by regulations and any consultant reports regarding the investment and
the selected vendor.
Similar submissions are required when retaining an investment consultant.
Following review of this material, the Commission will, in instances where no issues of
concern arise, issue an acknowledgement and the board may go forward. Such
acknowledgement may be withheld if the Commission determines that such action is in
the best interest of the retirement system .
Board Member
Several provisions of the new law relate to retirement board members. As noted, these
include matters regarding eligibility to serve, education and financial disclosure.
MEMORANDUM - Page Three
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE: Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Governance Provisions)
DATE: December 2, 2011
Eligibility
Although there are several areas in which an individual is prohibited from serving on a
board for- failing to meet education requirements or file financial information, Sections 33
and 53 provide that, "No employee, contractor, vendor or person receiving remuneration,
financial benefit or consideration of any kind, other than a retirement allowance or the
statutory stipend for serving in the retirement board shall be eligible to serve on a
retirement board; provided, however, that an employee of a retirement board may serve
on a retirement board other than the retirement board by which the person is employed;
and provided, further, that this paragraph shall apply only to individuals who first become
members of a retirement board on or after April 2, 2012" .
Education
This requirement is contained in the new Subdivision 7 of Section 20 of Chapter 32
added by Section 35 of Chapter 176 . Although this section of Chapter 176 takes effect
on April 2, 2012 the Commission will commence educational activities prior to that date
in order to assist retirement board members in meeting these education requirements for
calendar year 2012 .
The law requires that during each term a retirement board member complete 18 hours of
training. In each year a member must take a minimum of 3 hours of training. However,
no more than 9 hours may be credited in any one year. There is no prohibition on a
member completing more than 18 hours of training in the course. of a term .
PERAC will provide board members with appropriate forms to file as statements of
completion of education .
Failure to meet this mandatory requirement will prohibit the member from serving
beyond the conclusion of the tern for which the training requirement was not met,
PERAC is required to sponsor at least 9 hours of training which include, at a minimum,
the topics of fiduciary responsibility, ethical conduct and conflict of interest. An
additional 9 hours is to be related to topics prescribed by the Commission and provided
by local, state, regional or national entities as it may determine.
A more detailed outline of the 2012 program will be available shortly .
MEMORANDUM - Page Four
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE: Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Governance Provisions)
DATE : December 2, 2011
Financial Disclosure
Sections 1 and 36 of Chapter 176 require that each board member file an annual
"Retirement Board Member Statement of Financial Interest." with PERAC . Section 1 .
provides that these statements will be exempt from the Public Records Law and thereby
not subject to public release. Section 36 provides that " . . . every member of a retirement .
board shall file a statement of financial interests for the preceding calendar year with the
commission : (i) within 30 days of becoming a member of a retirement board; (ii) by May
1 of each year thereafter that the person is a member of a retirement board; and (iii) by
May 1 of the year after the person ceases to be a member of a retirement board" .
Under these provisions individuals who are members of a retirement board must, by
May 1 , 2012; submit a Statement of Financial Interests for 2011 , Also, individuals
who leave a retirement board after February 16, 2012 will be required to submit a
Statement of Financial Interests by May 1 , 2013 for 2012. Finally, individuals who
served on a retirement board in 2011 but are not serving in 2012 must, by May 1 ,
2012 file a Statement of Financial Interest for 2011 .
Those items that must be disclosed closely parallel several of the provisions of Chapter
268B with certain exceptions . Other employment, investments, loans, reimbursements,
gifts, honoraria, and other items must be disclosed,
Failure to file a Statement or the filing of an inaccurate or incomplete Statement will
result in removal of the person from the board and a prohibition on that person from
serving on any board .
A more detailed outline of these requirements will be available shortly.
Chanter 268A Compliance Pledge
Section 41 of Chapter 176 requires each retirement board member upon the
commencement of his/her term to file with the Commission " . . . a statement
acknowledging the member is aware of and will comply with the standards set forth in
Chapter 268A, this chapter (Chapter 32) and rules and regulations promulgated under this
chapter. " This form must be filed by any retirement board member beginning a term
after February 16, 2012 . '
MEMORANDUM - Page Five
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE : Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Governance Provisions)
DATE : December 2, 2011
Procurement Reform
Sections 4 and 42 of Chapter 176 set forth a specific statutory process to be followed by
retirement boards when procuring and contracting for certain services. It is important to
note that, although this law requires the retirement board to adhere to that specific
process, under Chapter 32, Section 23 (3) board members, as fiduciaries, must meet the
standard of a prudent expert in taking all actions related to procurement and contracting.
Due to the fact that these provisions come into effect on February 16, 2012,
retirement boards must conclude any ongoing procurement (including the execution
of a valid contract) prior to that date. Consequently, all procurements that have not
resulted in an executed contract as of that date will be void and retirement boards
"rust commence a new procurement process in compliance with the new law.
Although these provisions are not law until February 16, 2012, please be advised
that, in order to meet the requirements of 840 CMR 19. 01 (1),(2),(3),(7) and (11),
retirement boards must comply with the new statute regarding all regulatory
submissions made after December 31, 2011 . PERAC will not process any such
submissions in relation to investment services unless the provisions of Chapter 176
have been followed. Such an action is permissible corder the provisions of Chapter
32, Section 23 (g) and PERAC Investment Regulations.
Many of the requirements contained in the statute are clear and this memo is not intended
to be an exhaustive ,treatise on implementation. Retirement boards and their advisers
should be able to conduct procurements under the new law with little additional effort
beyond what has been required for years under the fiduciary duty noted above.
Anolicability
The specific provisions of Section 23B of Chapter 32 apply to all contracts and
procurements for investment, actuarial, legal and accounting services . Under paragraph
(k) of that Section there are additional provisions relative to the procurement of services
from an "investment service provider" . These would include, but not be limited to,
managers, partnerships, trusts, custodians, consultants, proxy services, securities
litigation services and services related to the financial information (cash books, pooled
fund statements, Annual Statements) the retirement boards must file with PERAC .
MEMORANDUM - Page Six
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE: Chapter .176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Governance Provisions)
DATE: December 2, 2011
Paragraph (c) of Section 23B mandates that a contract for procurement of legal,
investment, actuarial and accounting services must take place utilizing " . . . competitive
sealed proposals, in accordance with this section."
Procurement File
Under paragraph (d) a retirement board that must "maintain a file on each contract'
which retains "all written documents required by this section." In addition, this
paragraph addresses the issue of records retention by requiring that these documents
" . . . be retained by the retirement board for at least 6 years from the date of final. payment
.under the contract."
Request for Proposals (RFP)
For all procurements covered by the statute the retirement board must "solicit proposals
through a request for proposals ". That RFP must include, among other items set forth in
paragraph (g) of Section 23B, the following: .
( 1 ) The time and date for receipt of proposals, the address of the office to which . .
the proposals are to be delivered and the maximum time for proposal acceptance
by the retirement board;
(2) The purchase description and all evaluation criteria that may be utilized;
(3 ) All contractual terms and conditions .
Evaluation
The initial evaluation of the responses to the RFP is the responsibility of the retirement
board. However, with respect to investment management services, the investment
consultant may conduct the initial evaluation. That evaluation must be in writing and
based solely on the criteria set forth in the RFP.
Each proposal is to be rated as highly advantageous, advantageous, not advantageous or
unacceptable based on the evaluation criteria . The retirement board or investment
consultant, if applicable, must state the reasons for the rating.
Each proposal is to be assigned a composite rating and the retirement board or investment
consultant, if applicable, must state the reasons for the rating.
MEMORANDUM - Page Seven
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE : Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Governance Provisions)
DATE : December 2, 2011
Any revisions to a proposed plan for providing services should be obtained by
negotiation prior to awarding the contract. It should be noted that any such revision that
is agreed to by the retirement board that diminishes the rights of the retirement board as
originally proposed may result in a violation of fiduciary duty.
In'the event that the initial evaluation is conducted by the investment consultant the
consultant must review evaluations of all the proposals with the retirement board and
provide each member with the initial evaluation of each proposal.
Decision
The retirement board shall determine the most advantageous proposal from a responsible .
and 'responsive offeror taking into consideration price and the evaluation criteria . An
award may be conditioned on " . . . successfiil negotiation of the revisions specified in the
evaluation . . . " Any omission of a revision so specified must be explained in writing.
Negotiation
As noted, the retirement board or its duly designated agent, subject to the approval of the
retirement board, may negotiate all terms of the contract not deemed mandatory or non-
negotiable . If, after negotiation, the retirement board determines that it is in the best
interest of the retirement system not to award the contract to that vendor, it may
determine the proposal which is next most advantageous from a responsible and
responsive vendor and may negotiate terms of,the contract with that vendor.
Disclosures
On or before January 1 of each year and as part of the RFP process all contractors or
prospective contractors must file annual disclosures with the retirement board and
PERAC . These include disclosure of arrangements for compensation paid or to be paid
to a contractor or a related person in connection with the services the contractor provides
to the retirement board or any other client; disclosure of compensation in whatever form
paid or expected to be paid by the contractor or a related person to others in relation to
the services provided to the retirement board or any other client; and disclosure of any
conflict of interest that the contractor may have that may interfere with the ability of the
contractor to provide unbiased and objective services to the retirement board .
MEMORANDUM - Page Eight
TO : All Retirement Boards
FROM : Joseph E. Connarton, Executive Director
RE: Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Governance Provisions)
DATE : December 2, 2011
Cancellation/Rei ection
The retirement board may cancel an RFP or reject in whole or in part any and all
proposals if it determines that cancellation or rejection serves the best interests of the
retirement system. The reason (s) for the cancellation must be stated by the retirement
board in writing.
Vendor/Board Forms
In accordance with the new law, proposals submitted to a retirement board must include a
Vendor Certification Form by which vendors certify under the pains and penalties of
perjury that the proposal "has been made and submitted in good faith and without
collusion or fraud with any other person ."
In addition, each retirement board member must certify to PERAC under the pains and
penalties of perjury "that, to the best of the members knowledge and belief, this proposal
has been made and submitted in good faith and without collusion or fraud with any
person:"
Term
No contract may be awarded for a term exceeding 5 years, however, a retirement board
may participate in a limited partnership, trust or other entity with a term for a longer
period " . . . as part of an investment of system assets. " As a result, all contracts entered
into by a retirement board must explicitly state a term consistent with the new law .
Written Contracts
All contracts must be in writing and no payment may be made for a service rendered
prior to execution of a contract.
Penalties
A contract made in violation of these provisions is not valid and the retirement board may
not make any payments under such a contract.
MEMORANDUM - Page Nine
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE: Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Governance Provisions)
DATE: December 2, 2011
Any person conspiring to cause a contract to be solicited or awarded in violation of these
provisions will pay to the retirement board not more than $2,000 for each violation. In
addition, such a person will pay the retirement board double the amount of damages
sustained by the retirement board as a result of the violation .
As noted above, the provisions of the new law pertaining to procurement are clear,
concise and easily understood . During the course of its educational efforts the
Commission will review various aspects of procurement best practices, however,
retirement boards in concert with their attorneys and consultants should be able to
implement the law as written .
Enforcement
Section 38 of Chapter 176 authorizes PERAC to debar contractors and vendors thereby
excluding such contractors and vendors from "contracting or subcontracting with a
retirement board".
Debarment may be imposed for a number of reasons including :
( 1 ) Conviction or final adjudication by a court or administrative agency of the
following:
I (a) a criminal offense related to obtaining or attempting to obtain a contract or
subcontract or the performance of such a contract or subcontract;
(b) a criminal offense involving embezzlement, theft, forgery, bribery,
falsification or destruction of records, receiving stolen property or other
offenses indicating a lack of business integrity or honesty;
(c) a violation of state or federal antitrust laws ;
(d)_ a violation of Chapter 268A (the State Ethics Law);
(e) a violation of Chapter 32 .
(2) Substantial evidence of any of the following :
(a) providing false information in connection with obtaining or trying to obtain
a contract;
MEMORANDUM - Page Ten
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE : Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Governance Provisions)
DATE: December 2, 2011
(b) failure to comply with record keeping and accounting requirements of law
or regulation;
(c) failure to perform or unsatisfactory performance;
(d) submission of an inaccurate disclosure statement;
(e) failure to disclose certain compensation;
(f) any cause affecting the responsibility of a vendor which the Commission
determines to be serious and compelling enough to warrant debarment.
As noted within, additional guidance will be provided on the "non-governance" aspect of
Chapter 176 of the Acts of 2011 .
Thank you for your cooperation in this matter.
I
PERAC PERAC Memo # 36 / 2011
COMMONWEALTH OF MASSACHUSETTS PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION COMMISSIOY�
DOMENIC J. F. RUSSO. Choirmon JOSEPH E. CONNARTON, Executive Director
Auditor SUZANNE M. BUMP I ALAN MACDONALD I JAMES M. MACHADO I DONALD R. MARQUIS I ROBERT B. McCARTHY I GREGORY R. MENNIS
MEMORANDUM
TO : All Retirement Boards .
ao 'r - 471ew
FROM : Pose h E. Connarton, Executive Director
RE: Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Non- Governance Provisions)
DATE : December 7, 2011
On November 18, 2011 Governor Patrick signed Chapter 176 of the Acts of 2011 ,
reforming and modernizing the pension laws for public employees in the Commonwealth.
This new law includes provisions dealing with governance of Boards and Retirement
Systems and provisions dealing with other aspects of the public pension statutes . This
Memorandum will discuss the sections other than those dealing with governance.
Separate Memoranda has been issued dealing with the governance aspects of Chapter 176
of the Acts of 2011 . Sections impacting only the State Retirement System, public school
teachers, and the special commissions established by the Act are also not included in this
Memorandum .
Chapter 176 of the Acts of 2011 becomes effective on February 16, 2012 but internal
effective date language governs certain sections . The effective date will be included in
the discussion of each section.
Sections 29 and 30 create a local option to increase the $250 per month minimum
allowance contained in G .L. c. 32, § 12 to $ 500 per month, Section 34 creates a local
option that will increase the stipend paid to members of the Retirement Board . These
local options may be acted upon after February 16, 2012 . Please see the discussion of
these sections below.
Section 55 establishes the possibility of an option change for certain retirees who entered
into a same sex marriage with a specific time frame. The time for implementation
contained in that section will require immediate action by the Boards , Please see the
discussion of this section below.
FIVE MIDDLESEX AVENUE, SUITE 304 1 SOMERVILLE, MA 02145 I _
PH 617 666 44461 FAX 617 628 40021 TTY 617 591 89171 WWW.MASS.GOV/PERAC e i
MEMORANDUM - Page Two
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE: Chapter 176 of the Acts of 2Q 11 : An Act Providing for Pension Reform and
Benefit Modernization (Non4Governance Provisions)
DATE : December 7 , 2011
Amending definition of "regular compensation "
Section 6 excludes from "regular compensation" any wages from the federal government
that were not reported to any employing authority . This section is effective on February
16, 2012, 90 days after the bill was signed by the Governor. In its current form, the
placement of the amendment appears to only amend the provision dealing with earnings
prior to 1946 and may need further action to have the desired effect.
Group Classification
Section 8 provides that in order for a member to be classified in Group 2 or 4, a member
must have actively performed the duties of that position for not less than 12 months
immediately preceding termination from service or retirement. This section is effective
on April 2, 2012 and applies only to individuals who entered service prior to that date.
Purchase of Creditable Service
Section 9 provides that members who are reinstated to membership or re-enter
membership or are otherwise entitled to purchase creditable service under G.L . c. 32, § 3
must make a make-up payment into the system within 1 year of reinstatement or re-entry,
plus buyback interest. If the member enters into an installment repayment plan, the
buyback must be completed within one year of reinstatement or re-entry, or within 1 year
of April 2, 2012, whichever is later. If the member does not make the make-up payment
within the time period described, the interest on the make-up payment will be the
assumed actuarial interest. This section is effective on April 2, 2012 .
Increase in Mininnan Retirement Age
Section 11 amends G.L. c. 32, § 5 so that persons who become members of a Retirement
System on or after April 2, 2012 and are classified in Group 1 cannot retire prior to
attaining age 60 . Please be aware that if a member who -has terminated. and taken a _
refund of his or her accumulated total deductions later becomes a member of a
Retirement System, he or she is subject to all of the rights and responsibilities of G.L . c.
32 as of the date that the individual returns to membership . We encourage Retirement
Boards to counsel members seeking to take a reftmd of their contributions of the potential
ramifications of the new statutory provisions.
MEMORANDUM - Page Three
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE : Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Non-Governance Provisions)
DATE : December 7, 2011
Retirees Elected to Public Office or Appointed to Certain Positions After Retirement
Choosine to Become Active Members of the Retirernent. Svstem
Section 12 amends the provision of G .L. c. 32, § 5 ( 1 )(g) that allows retirees who are
elected to office after retirement or are appointed to a position by a Mayor, or a City
Council, or a Board of Selectmen to choose to again become active members of a
Retirement System . The amendment requires those making this choice to repay the entire
amount of any retirement allowance received, plus buyback interest and to meet all of the
requirements of reinstatement under G.L. c. 32, § 105 . This section is effective on April
2, 2012 and applies to all retirees who are elected to office after retirement or appointed
to a position by a Mayor, a City Council, or a Board of Selectmen and who choose to
become active members after that date.
Average Annual Rate ofRekular Compensation to Utilize for CalculatinQAllowances
Section 13 changes the number of years to be used in calculating retirement allowances.
The calculation is to be based on the high 5 years of regular compensation paid to the
member during the last 5 years of creditable service or any 5 consecutive years of
creditable service, whichever is greater. This section applies to any member who
becomes a member on or after April 2, 2012 . Please be aware that if a member who has
terminated and taken a refund of his or her accumulated total deductions later becomes a
member of a Retirement System, he or she is subject to all of the rights and
responsibilities of G .L . c. 32 as of the date that the individual returns to membership . We
encourage Retirement Boards to counsel members seeking to take a refund of their
contributions of the potential ramifications of the new statutory provisions .
Anti-Spiking and Prorating for GroUD Classification Provisions
Section 14 outlines the method whereby compensation increases of more than 100% in
any 2 consecutive years during in the 5 years prior to retirement will be eliminated and
requires the-regular compensation-average to-be-calculated-by-using the last5 _year average
rather than 3 years . This section applies to any member who becomes a member on or
after April 2, 2012. Please be aware that if a member who has terminated and taken a
refund of his or her accumulated total deductions later becomes a member of a
Retirement System, he or she is subject to all of the rights and responsibilities of G .L. c .
32 as of the date that the individual returns to membership . We encourage Retirement
Boards to counsel members seeking to take a refund of their contributions of the potential
ramifications of the new statutory provisions .
MEMORANDUM - Page Four
TO : All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE: Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Non-Governance Provisions)
DATE: December 7, 2011
Section 18 also deals with anti-spiking and provides that the average rate of regular
compensation in any year is not to include amounts that are in excess of 10% of the rate
in the 2 preceding years . This prohibition will not apply to modifications in the salary
schedule negotiated in a collective bargaining agreement. This section applies to any
member retiring on or after April 2, 2012 . Further guidance will be issued at a later date.
Section 14 also mandates pro-rating benefits in cases where a member entered service on
or after April 2, 2012 and has creditable service in more than one Group Classification.
This provision becomes effective on April 2, 2012 . Any active member as of April 2,
2012 may elect to receive a retirement allowance based on the pro-ration which is
mandatory for those entering service on or after April 2, 2012 , As the time of actual
implementation nears, PERAC will issue specific guidance for these provisions .
New Age Factors for Retirement Calculations
Sections 15 , 16, 17, and 23 establish new age factors to be applied to any member who
becomes a member on or after April 2, 2012. In general, the new factors will increase the
age when a member' s allowance will be calculated using the maximum age factor. The
new factors also increase the minimum age at which a member can retire. There is also a
new factor table to be used for members with more than 30 years of creditable service.
The 80% maximum amount that a member can receive is amended to reflect the use of a
high 5 year average annual amount of regular compensation in calculating the allowance .
These new factor tables and 80% limitation apply to members who become members on
or after April 2, 2012 . Please be aware that if a member who has terminated and taken a
refund of his or her accumulated total deductions later becomes a member of a
Retirement System, he or she is subject to all of the rights and responsibilities of G .L. c .
32 as of the date that the individual returns to membership . We encourage Retirement
Boards to counsel members seeking to take a refund of their contributions of the potential
ramifications of the new statutory provisions . In general, the new factors will increase
the age when a member' s allowance will be calculated using the maximum age factor.
The age factors for persons who became members prior to April 2, 2012 remain the same .
The factors also remain the same for persons who were members prior to April 2, 2012
and who may have breaks in service but have uninterrupted membership after that date.
MEMORANDUM - Page Five
TO : All Retirement Boards
FROM : Joseph E. Connarton, Executive Director
RE: Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Non-Governance Provisions)
DATE: December 7, 2011
Treatment ofPeriods ofLeave During Which Creditable Service is Granted
Section 19 amends G.L. c. 32, § 5 (3)(b) to reflect the change in the number of years used
in a retirement calculation from the average annual rate of regular compensation from 3
years to 5 years . This section applies to any member who becomes a member on or after
April 2, 2012 . Please be aware that if a member who has terminated and taken a refund
of his or her accumulated total deductions later becomes a member of a Retirement
System, he or she is subject to all of the rights and responsibilities of G.L. c . 32 as of the
date that the individual returns to membership . We encourage Retirement Boards to
counsel members seeking to . take a refund of their contributions of the potential
ramifications of the new statutory provisions .
Termination Alloivances Eliminated for Neiv Members
Sections 24, 25 , 26 and 27 eliminate the termination allowances contained in G .L . c . 32,
§ 10 for members who become members after April 2, 2012 . These members with at
least 10 years of creditable service and who are not reappointed, who are discharged
without moral turpitude, who accept a position that requires resignation from an elected
position in the General Court, _ whose position is abolished or who voluntarily resigns
shall have the right to apply for superannuation upon attaining the minimum retirement
age, contained in the newly enacted age factor tables, provided that they have left their
funds in the Retirement System. The newly enacted factor tables will be utilized in
calculating the allowance. These sections apply to any member who becomes a member
on or after April 2, 2012 . Please be aware that if a member who has terminated and taken
a refund of his or her accumulated total deductions later becomes) a member of a
Retirement System, he or she is subject to all of the rights and responsibilities of G .L . c.
32 as of the date that the individual returns to membership . We encourage Retirement
Boards to counsel members seeking to take a refund of their contributions of the potential
ramifications of the new statutory provisions . These sections become effective April 2,
2012 .
Calculation of Option D Benefit Amended to Reflect New Mininnun Retirement Aze
Provisions
Section 28 amends the calculation of an Option D benefit, taking into account the new
minimum age provisions . Under the amendment, if the member was classified in Group
1 and died prior to attaining age 60, the Option D benefit will be calculated as if the
member had attained age 60 on the date that the member died . If the member is over age
MEMORANDUM - Page Six
TO : All Retirement Boards
FROM : Joseph E. Connarton, Executive Director
RE: Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Non-Governance Provisions)
DATE: December 7, 2011
60 on the date of death, the age factor for his or her actual age will be used. This section
applies to any member who becomes a member on or after April 2, 2012 . Please be
aware that if a member who has terminated and taken a reftind of his or her accumulated
total deductions later becomes a member of a Retirement System, he or she is subject to
all of the rights and responsibilities of G.L. c . 32 as of the date that the individual returns
to membership . We encourage Retirement Boards to counsel members seeking to take a
refund of their contributions of the potential ramifications of the new statutory
provisions .
Increase Mininnun Allowance contained in G.L. c. 32, 612 — Local Option
Sections 29 and 30 create a local option that would allow the minimum allowance
contained in G.L. c. 32, § 12 to , be increased from $250 per month to $500 per
month. This option is accepted by a majority vote of the Retirement Board and the
legislative body. The legislative body in a city is the city council subject to its +
charter; in a town, the town meeting; in a county, the county retirement board
advisory council; in a region, by a vote of the regional retirement board advisory
council; in a district, the district members; and for an authority, its governing body.
Acceptance shall be deemed to have occurred upon the filing of a certification of
such vote with the Commission. This section is effective on February 16, 20t2
and can be adopted after that date .
Repavinent of Allowances Received by Members Convicted of Crimes Connected with,
Their Position
Section 31 provides that any member who retires on or after April 2, 2012 who was
convicted of an offense that mandates forfeiture of their allowance must repay to the
Retirement System any retirement allowance received after the date that the offense was
committed that resulted in the conviction .
Retirement Board Hearings on Involuntary Retirement Aaolications
Section 32 amends G .L. c. 32, § 16( 1 )(b) to reflect the change in minimum age for
retirement. Members who enter service on or after April 2, 2012 who have attained age
60 and have been granted creditable service in excess of 15 years or have not attained age
60 but who have been granted 20 years of creditable service may request a hearing before
the Retirement Board when their employer files an application for involuntary retirement.
These new age and service requirements apply to members who become a member on or
MEMORANDUM - Page Seven
TOc All Retirement Boards
FROM: Joseph E . Connarton, Executive Director
RE: Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
I Benefit Modernization (Non-Governance Provisions)
DATE: December 7, 2011
after April 2, 2012. Please be aware that if a member who has terminated and taken a
refund of his or her accumulated total deductions later becomes a member of a
Retirement System, he or she is subject to all of the rights and responsibilities of G.L . C.
32 as of the date that the individual returns to membership. We encourage Retirement
Boards to counsel members seeking to take a refund of their contributions of the potential
ramifications of the new statutory provisions .
Local Option Increasing Retirement Board Member Compensation
Section 34 establishes a local option that will allow the stipend paid to Retirement Board
Members to be increased to $4,500 per year. The Ex-officio Board member' s
compensation for services rendered to the System shall be a stipend of not more than
$4, 500 per year, in the aggregate, for services rendered to the System . This option
remains a local option, accepted by a vote of the legislative body. The legislative
body in a city is the city council subject to its charter; in a town, the town meeting;
in a county, the county retirement board advisory council; in a region, by a vote of
the regional retirement board advisory council; in a district, the district members ;
and for an authority, its governing body. This section is effective on February 16,
2012 and . can be adopted after that date . The Retirement Board must notify the
Commission of acceptance and provide certified copies of the votes .
Retirement Boards to Collect and Maintain Collective BarQaininQ Agreements
Sections 37 and 54 require all employers of members of a Retirement System to provide
the Retirement Board with copies of collective bargaining agreements pertaining to the
members of the System . The Retirement Board is to review the agreements for
consistency with Chapter 32 and to maintain copies of all agreements. The Retirement
Board is to maintain a copy of all collective bargaining agreements and make them
available to the Commission for review upon request. The sections become effective on
February 16, 2011 . Retirement Boards should gather all contracts in effect on that date in
order to comply with these sections .
Contribution Rates Chamred
Section 39 adds new provisions to G .L . c. 32, § 22( 1 )(b) and establishes a new
contribution rate for Group 1 members who become members of a Retirement System on
or after April 2, 2012 . The contribution rate of these members will be reduced to 6%
when the 30 years of creditable service is attained . The new contribution rate applies to
MEMORANDUM - Page Eight
TO : All Retirement Boards
FROM : Joseph E . Connarton, Executive Director
RE : Chapter 176 of the Acts of 2011 : An Act Providing for Pension I eform and
Benefit Modernization (Non-Governance Provisions)
DATE : December 7, 2011
members who become members on or after April 2, 2012. Please be aware that if a
member who has terminated and taken a refund of his or her accumulated total
deductions later becomes a member of a Retirement System, he or she is subject to all of
the rights and responsibilities of G .L. c. 32 as of the date that the individual returns to
membership . We encourage Retirement Boards to counsel members seeking to take a
refund of their contributions of the potential ramifications of the new statutory
provisions .
Creditable Service for Representatives ofEmvlovee Organizations on a Leave ofAbsence
Section 45 amends G .L. c . 32, § 28K making it clear that creditable service is granted to a
member on a frill-time or part-time leave of absence without pay to act as a representative
of an employee organization. The requirement that the member make contributions to the
Retirement System in order to receive creditable service remains , This section becomes
effective on February 16, 2012 .
This section remains subject to acceptance by a majority vote of the Retirement Board
and the legislative body . The legislative body in a city, is the city council subject
to its charter; in a town, by a vote at a town meeting; in a county, by a vote of the
county retirement board advisory council; in a region, by a vote of the regional
retirement board advisory council; in a district, by a vote of the district members ;
and for an authority, by a vote of its governing body . Acceptance shall be deemed
to have occurred upon the filing of a certification of such vote with the
Commission .
New Mininnan Retirement Allowance for Retirees with More Than 25 Years of Creditable
Service
Section 48 adds a new section, G .L . c. 32, § 90D '/2, that creates a local option that will
establish a $ 15 ,000 minimum retirement allowance for retirees who had been granted in
excess of 25 years of creditable service. This local option is accepted by a majority
vote of the Retirement Board, and by vote of the legislative body. The legislative
body in a city is the city council subject to its charter; in a town, the town meeting;
in a county, the county retirement board advisory council; in a region, by a vote . of
the regional retirement board advisory council ; in a district, the district members;
and for an authority, its governing body. This section is effective on February 16 ,
MEMORANDUM - Page Nine
TO : All Retirement Boards
FROM : Joseph E. Connarton, Executive Director
RE : Chapter 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Non-Governance Provisions)
DATE : December 7, 2011
2012 and can be adopted after that date . The Retirement Board must notify the
Commission of acceptance and provide certified copies of the votes .
Retirees Elected to Public Office
Section 49 eliminates the provision of G.L . c. 32, § 91 (a) that allowed an elected official
to retire shortly before re-election and to receive both his or her allowance and the salary
paid for the elected office. This new provision prohibits an elected official from
receiving both payments unless elected to a position at least one year after retiring from
the public elected office. This limitation does not apply to members who retired from a
position other than an . elected position and are subsequently elected to a public office.
This section becomes effective and applies to all members who retire on or after April 2,
2012 .
Increase on Limit on Post-Retirement Earnings in the Public Sector
Section 50 increases the amount that a retiree can earn in the public sector. The
limitation on the hours that a retiree can be employed remains 960, but pursuant to this
amendment, the earnings from that employment when added to the member' s retirement
allowance cannot exceed the salary being paid to the position from which the member
retired or in which the member' s employment was terminated, plus $ 15 ,000 , If the
retiree reaches the 960 hour limitation prior to reaching the new excess earnings
limitation, such retiree must cease working even though the excess earnings limitation
has not been exceeded . It must be noted that the retiree can only earn the maximum
amount with the new $ 15 ,000 increase, if the retiree does not exceed the maximum
amount allowed within the 960 hour limitation. Section 51 further provides that in the
first year after the date of retirement, however, the earnings from that employment when
added to the member' s retirement allowance cannot exceed the salary being paid to the
position from which the member retired or in which the member' s employment was
terminated. This section becomes effective on April 2, 2012 . The earnings limitations
for disability retirees contained in G .L. c . 32, § 91A have not changed.
Waiver of 91A Filings
Section 51 allows PERAC to waive the requirement that a disability retiree file an annual
statement of earnings if the retiree has been retired for more than 20 years and has
reported no earnings for the prior 10 years . The member must sign an affidavit under the
pains and penalties of perjury indicating that should the member realize any earned
MEMORANDUM - Page Ten
TO : All Retirement Boards "
FROM : Joseph E. Connarton, Executive Director
RE : Chaptel% 176 of the Acts of 2011 : An Act Providing for Pension Reform and
Benefit Modernization (Non-Governance Provisions)
DATE : December 7, 2011
income in the future the member will forthwith notify the Commission of that fact and
again report under this section . This section becomes effective on April 2, 2012 .
PERAC will begin implementation in calendar year 2012 .
Option Selection Change Available for Certain Retirees with Saine Sex Spouses
Section 55 allows members who entered into .a same sex marriage between May 17, 2004
and May 17, 2005 and who had retired before May 17, 2004 and selected either Option A
or Option B to change their option selection to Option C, presumably in order to name
their spouse as the Option C beneficiary. If a member who met that criteria has since
died, the surviving spouse may, ask that the Option be changed to C. The spouse
changing the election would then be entitled to an Option C survivor allowance. This
section becomes effective on February 16, 2012 and the option change must be made by
July 1 , 2012 . The change in option shall be effective from the date of retirement going
forward . The Retirement Board has 180 days to implement the change once the election
is made. Because this change of option may result in overpayments having been made to
such members, the Board shall make appropriate adjustments or arrangement for
appropriate repayments upon such terms and conditions as the Board may prescribe.
Retirement Boards should immediately provide notice to all members who retired
between May 17, 2004 and May 17, 2005 to determine who could be eligible for this
option change .
The Commission understands the comprehensive nature of Chapter 176 of the Acts of
2011 and appreciates that this statute represents a significant change in the administration
of G .L . c. 32. The Commission and staff will continue to work with all of the Boards
through the implementation process.
Thank you for your continued cooperation in this regard ,
pAlegahperac memosk 176 2011 memo to boards 12 Zdoc
ATTACHMENT TO PERAC MEMORANDUM 36/2011
Sections of Chanter 176 of the Acts of 2011
Not including those annlicable only to State Police and Teachers, and Snecial Commissions
and the those dealine with Retirement Board Governance
SECTION 6 . The first sentence of the definition of "regular compensation" in said section
1 of said chapter 32, as so appearing, is hereby amended by inserting after the word "date" the
following words : - ; provided, however, that if the employee receives compensation for wages in
whatever form from the federal government and such wages were not reported to any employing
authority, such wages shall not be counted as regular compensation for the purposes of the
benefits provided in this chapter. .
SECTION 8 . Paragraph (g) of subdivision (2) of section 3 of said chapter 32, as so
appearing, is hereby amended by inserting after the word "groups" in line 229, the following:-;
provided that a member entering service prior to April 2, 2012 must be actively employed in a
Group 2 or Group 4 position by a governmental unit which is subject to a retirement system
cinder chapter 32, and must be actively performing the duties of said position for which the
member seeks classification for not less than 12 consecutive months immediately preceding
termination or retirement in order to qualify for the retirement allowance calculation of said
group contained in subdivision (2) of section 5 .
SECTION 9 . Paragraph (b) of subdivision (8) of section 3 of said chapter 32, as so
appearing, is hereby amended by inserting after the third sentence the following sentence: -
Notwithstanding any provision of this chapter to the contrary, a member who is reinstated to, or
re-enters the active service of, a governmental emit, or who is eligible to receive credit for other
service under this section, and who does not, (i) pay into the annuity savings fiord of the system
make-up payments of an amount equal to the accumulated regular deductions withdrawn by the
member, together with buyback interest; or (ii) make provision for the repayment in installments,
upon such terms and conditions as the board may prescribe, to pay into the annuity savings fund
of the system make-up payments of an amount equal to the accumulated regular deductions
withdrawn by the member, together with buyback interest, within 1 year from the date of
reinstatement or re-entry or within I year after April 2, 2012, whichever is later, shall pay
actuarial assumed interest instead of buyback interest on all make-up payments to be entitled to
creditable service resulting from the previous employment.
SECTION 11 . Section 5 of said chapter 32, as so appearing, is hereby amended by striking
out, in line 3 , the word "fifty-five" and inserting in place thereof the following words:- 55 or any '
member in service or any member inactive on authorized leave of absence classified in Group 1
who became such a member on or after April 2, 2012 who has attained age 60 .
SECTION 12 . Said section 5 of said chapter 32, as so appearing, is hereby further
amended by inserting after the word "service", in line 38, the following words :- , together with
buyback interest, and shall satisfy the requirements for reinstatement under subsection (a) of
section 105 .
Page 1
SECTION 13 . Said section 5 of said chapter 34 as so appearing, is hereby finrther
amended by inserting after the word "retirement", in line 97, the following words:- ; provided,
however that for a member who became a member on or after April 2, 2012, the total amount of
regular compensation shall be based on the average annual rate of regular compensation received
by such member during any period of 5 consecutive years of creditable service for which such
rate of compensation was the highest, or on the average annual rate of regular compensation
received by such member during the period or periods, whether consecutive or not, constituting
the member' s last 5 years of creditable service preceding retirement, whichever is the greater.
SECTION 14. Paragraph (a) of subdivision _ (2) of said section 5 of said chapter 32, as so
appearing, is hereby amended by inserting after the first sentence the following 4 sentenees :-
Notwithstanding the previous sentence, if in the 5 years of creditable service immediately
Preceding retirement, the difference in the annual rate of regular compensation between any 2
consecutive years exceeds 100 per cent, the normal yearly amount of the retirement allowance
shall be based on the average annual rate of regular compensation received by the member
during the period of 5 consecutive years preceding retirement. Any active member as of April 2,
2012, who has served in more than 1 group may elect to receive a retirement allowance
consisting of pro-rated benefits based upon the percentage of total years of service that the
member rendered in each group; further, the retirement allowance for members who became
members on or after April 2, 2012, and who served in more than 1 group, shall receive a
retirement allowance consisting of pro-rated benefits based upon the percentage of total years of
service that member rendered in each group. The pro-rated benefits shall be calculated in a
manner prescribed by the commission. A member who entered service on or before April, 2,
2012 and seeks Group 2 or Group 4 classification and is no longer a public employee at the time
of the member's retirement shall be classified based on the position from which the member was
last employed.
SECTION 15 . The table in said paragraph (a) of said subdivision (2) of said section 5 of
said chapter 32, as so appearing, is hereby amended by striking out the title and inserting in place
thereof the following title:-
Table showing Percentage of the Amount of Average Annual Rate of Regular
Compensation to be nndtiplied by the Number of Years of Creditable Service for individuals
who became members before April 2, 2012._
Page 2
SECTION 16. Said paragraph (a) of subdivision (2) of said section 5 of said chapter 32, as
so appearing, is hereby amended by adding the following 2 tables: -
Table Showing Percentage of the Amount of Average Annual Rate of Regular•
Compensation to be multiplied by the Number of Years of Creditable Service for individuals who
become members on or after April 2, 2012 and with at least 30 years of creditable service at the
tune ofretirernerrt
Per Cent Group_ 1 _ Group 2 Group 4
t50 167 or older 162 or older 157 or older
�2 .35 166 161 — — 156
�1 .20 F 165 160 155
j2 .05 164 159 v 54 J
11 . 90 J63 158 _ 53
11 .75 157 52
11 . 60 161 156 51
11 .45 160 155 50
Table Showing Percentage of the Amount of Average Annual Rate of Regular
Compensation to be multiplied by the Number of Years of Creditable Service for individuals who
become members on or• after April 2, 2012 and with at least 30 years of creditable service at the
time of retirement
Per Cent Group I Group 2 Group 4
2 . 50 167 or older 162 or older 157 or older
(L .375 166 161 156
'L .250 165 160 155
(2. 125 164 158
59 154
lit0 163 153 �
j1 . 875 162 157 — —]52
11 .750 161 156 151
11 .625 160 155 150 J
SECTION 17 . Paragraph (c) of said subdivision (2) of said section s of said chapter 32, as
so appearing, is hereby amended by adding the following sentence:- The total normal yearly
amount of the retirement allowance of any member of Group I or Group 2 or Group 4, who
becomes such a member on or after April 2, 2012, shall not exceed four-fiftlis of the average
annual rate of such member' s regular compensation received during any period of 5 consecutive
years of creditable service for which such rate of compensation was the highest or on the average
annual rate of regular compensation received by such member during the period or periods,
whether or not consecutive, constituting such member' s last 5 years of creditable service
preceding retirement, whichever is the greater.
SECTION 18 . Said subdivision (2) of said section 5 of said chapter 32, as so appearing, is
hereby further amended by adding the following paragraph : -
Page 3
(f) In calculating the average annual rate of regular compensation for purposes of this
section, regular compensation in any year shall not include regular compensation that exceeds
the average - of regular compensation received in the 2 preceding years by more than 10 per cent.
This paragraph shall not apply to an increase in the annual rate of regular compensation that
results from an increase in hours of employment, from overtime wages, from a bona fide change
in position, excluding a modification in the salary or salary schedule negotiated for bargaining
unit members under chapter 150E, or in the case of a teacher, from the performance of any
services set forth in the third sentence of the first paragraph of the definition of "regular
compensation" in section 1 . Any withholdings excluded from the calculation of a member' s
average annual rate of regular compensation under this paragraph, shall be returned to the
member with interest at the assumed actuarial rate.
SECTION 19. Paragraph (b) of subdivision (3) of said section 5 of said chapter 32, as so
appearing, is hereby amended by striking out the first sentence and inserting in place thereof the '
following sentence:- Any duly authorized leave or period of absence for which any member is
allowed creditable service under sections 1 to 28, inclusive, and any such leave or period of
absence not in excess of 1 year for which such member is not allowed creditable service, shall be
included in any applicable 3 -year or 5-year period to determine the average annual rate of such
member' s regular compensation therefor to the extent such leave or period of absence falls
within such applicable 3-year or 5 -year period, anything in such sections to the contrary
notwithstanding.
SECTION 23 . Subdivision (2) of section 6 of said chapter 32, as so appearing, is hereby
amended by striking out paragraph (a) and inserting in place thereof the following paragraph:-
following paragraph: -
(a) The normal yearly amount of such allowance for any member classified in Group 1 ,
Group 2 or Group 4(a) The normal yearly amount of such allowance for any member classified
in Group 1 , Group 2 or Group 4 other than a veteran as defined in section I shall be equal to that
to which the member would be entitled under section 5 as prescribed for a member of the
member' s group, if the member were to be retired for superannuation upon the attainment of age
55 , or foci any member classified in Group 1 who became such a member on or after April 2,
2012 if such member were to be retired for superannuation upon the attainment of age 60, with
an amount of creditable service equal to that with which the member is credited at the date of the
member' s actual retirement for ordinary disability; provided, however, that if the member has
attained age 55 , or for a member classified in Group 1 who became such a member on or after
April 2, 2012 if the member has attained age 60, the normal yearly amount of such allowance
shall in no event be less than that to which the member would be entitled if the member were to
be retired for superannuation under section 5 as prescribed for a member in the member' s group;
and provided, further, that the normal yearly amount of such allowance for a member who
became such a member before April 2, 2012 shall not exceed four-fifths of: (i) the average
annual rate of the member' s regular compensation during any period of 3 consecutive years of
creditable service for which such rate of compensation was the highest, and (ii) the average
annual rate of regular compensation received by such member during the period or periods,
whether or not consecutive, constituting the member' s last 3 years of creditable service
preceding retirement, whichever is greater; and provided, further, that for a member who became
Page 4
such a member on or after April 2, 2012 the normal yearly amount of such amount shall not
exceed four-fifths of: (i) the average annual rate of the member' s regular compensation during
any period of 5 consecutive years of creditable service for which such rate of compensation was
the highest, and (ii) the average annual rate of regular compensation received by such member
during the period or periods, whether or not consecutive, constituting the .member' s last 5 years
of creditable service preceding retirement, whichever is greater.
SECTION 24 . . Subdivision (1 ) of section 10 of said chapter 32, as so appearing, is hereby
amended by adding the following sentence: -This subdivision shall not apply to any member who
entered service on or after April 2, 2012,
SECTION 25 . Subdivision (2) of said section 10 of said chapter 32, as so appearing, is
hereby amended by adding the following sentence:- This subdivision shall not apply to any
member who entered service on or after April 2, 2012,
SECTION 26. Said section 10 of said chapter 32, as so appearing, is hereby further
amended by inserting after subdivision (2) the following subdivision: -
(2A) Notwithstanding subdivision (1 ) or (2) any member classified in Group 1 , Group 2 or
Group 4, who became a member on or after April 2, 2012, has completed 10 or more years of
creditable service, and:
(a) who. fails of reappointment;
(b) who is removed or discharged from the member's office or position without moral
turpitude on the member ,s part;
(c) who accepts, during or prior to the expiration of a term for which the member was
elected, appointment to an office or position the acceptance of which requires under the
constitution of the commonwealth resignation from the general court;
(d) whose office or position is abolished; or
(e) who resigns or voluntarily terminates the member's service, who leaves the member's
accumulated total deductions in the armuify savings fund of the system of which the member is a
member, shall have the right upon attaining the minimum retirement age for the member' s
Group, or at any time thereafter, to apply for a superannuation retirement allowance to become
effective under subdivision (3) .
Such allowance shall be determined under section 5 or any other section governing
superannuation retirement applicable to such member upon the basis of the member's age on the
date when the retirement allowance becomes effective, with an amount of creditable service
equal to that with which the member was credited on the date of the member' s termination of
service.
SECTION 27 . Said section 10 of said chapter 32, as so appearing, is hereby further
amended by striking out, in lines 112 and 113 , the words "or (2)" and inserting in place thereof
the following words :- ,(2) or (2A) .
SECTION 28 . Option (d) of subdivision (2) of section 12 of said chapter 32, as so
appearing, is hereby amended by striking out the second paragraph and inserting in place thereof
the following paragraph: -
If such member dies before attaining age 55 and before being retired, such nominated
eligible beneficiary shall receive the Option (c) allowance to which such member would have
Page 5
been entitled had the member attained age 55 at the time of the member's death and had the
member' s retirement taken place on the date of the member' s death. Notwithstanding the
previous sentence, if a member of Group 1 who became such a member on or after April 2, 2012
dies before attaining age " 60 and before being retired, such nominated eligible beneficiary shall
receive the Option (c) allowance to which such member would have been entitled had the
member attained age 60 at the time of the member' s death and had the member' s retirement
taken place on the date of the member's death,
SECTION 29 . Said section 12 of said chapter 32, as so appearing, is hereby further
amended by striking out, in lines 211 and 212, the words "two hundred and fifty dollars" and
inserting in place thereof the following words :- $250 or $500 a month, whichever is applicable to
such spouse.
SECTION 30. Option (d) of said section 12 of said chapter 32, as so appearing, is hereby
amended by inserting after the tenth paragraph the following paragraph:-
Beginning April 2, 2012, the normal monthly member-survivor allowance provided for
under this option to a spouse of a deceased member shall not be less than $500 for members of
the state teachers ' and state employees ' retirement system. This paragraph shall take "effect for
the members of a retirement system of any other political subdivision by a majority vote of the
board of such system and by the local legislative body. For the purpose of this paragraph, a vote
of the legislative body shall take place in the following manner: in a city, by a vote of the city
council subject to its charter; in a town, by a vote at a town meeting; in a county, by a vote of
the county retirement board advisory council; in a region, by a vote of the regional retirement
board advisory council; in a district, by a vote of the district members; and for an authority, by a
vote of its governing body. Acceptance shall be deemed to have occurred upon the filing of a
certification of such vote with the commission.
SECTION 31 . Section 15 of said chapter 32, as so appearing, is hereby amended by
adding the following subdivision:-
.(6) If a member's final conviction of an offense results in a forfeiture of rights under this
chapter, the member shall forfeit, and the board shall require the member to repay, all benefits
received after the date of the offense of which the member was convicted.
SECTION 32 . Paragraph (b) of subdivision ( 1 ) of section 16 of said chapter 32, as so
appearing, is hereby amended by striking out the first sentence and inserting in place thereof the
following : "
hereby amended by striking out the first sentence and inserting in place thereof the
following: -
(i) Any member in service, classified in Group 1 , Group 2 or Group 4 who has attained age
55 and completed 15 or more years of creditable service;
(ii) any member in service, classified in Group 1 , Group 2 or Group 4 who has not attained
age 55 but who has completed 20 or more years of creditable service;
Page 6
(iii) any member in service, who entered such service on or after April 2, 2012, classified
in Group 1 who! has attained age 60 and completed 15 or more years of creditable service; or
(iv) any member in service, who entered such service on or after April 2, 2012, classified
in Group 1 who has not attained age 60 but who has completed 20 or more years of creditable
service, for whom an application for such member' s retirement is filed by the head of such
member' s department under paragraph (a) of this subdivision, may, within 15 days of the receipt
of such member' s copy of such application, file with the board a written request for a private or
public hearing upon such application.
SECTION 34 . Said section 20 of said chapter 32, as so appearing, is hereby further
amended by striking out subdivision (6) and inserting in place thereof the following subdivision:-
(6) Retirement Board Members Compensation.-The elected and appointed members of a
city, town, county, regional, district or authority retirement board upon the acceptance of the
appropriate legislative body shall receive a stipend; provided, however, that the stipend shall not
be less than $3 ,000 per year and not more than $4,500 per year; provided, Anther, that the
stipend shall be paid from fonds under the control of the board as shall be determined by the
commission; and provided, further, that an ex-officio member of a city, town, county, district or
authority retirement board upon the acceptance of the appropriate legislative body shall receive a
stipend of not more than $4,500 per year in the aggregate for services rendered in the active
administration of the retirement system.
SECTION 37 . Paragraph (a) of subdivision ( 1) of section 21 of said chapter 32, as so
appearing, is hereby amended by inserting after the fourth sentence the following sentence :-
Each board shall maintain a copy of all collective bargaining agreements which cover the
system' s members and shall make the agreements available to the commission for review at such
time as the commission shall specify.
SECTION 39 . Paragraph (b) of subdivision (1 ) of section 22 of said chapter 32, as
appearing in the 2010 Official Edition, is hereby amended by striking out clauses (v) and (vi) and
inserting in place thereof the following 4 clauses: -
(y) APPLICABLE ONLY TO STATE POLICE.
(vi) APPLICABLE ONLY TO TEACHERS ;
(vii) withhold on each pay day 6 per cent of the regular compensation of each employee in
group 1 who is a member in service of the system, in the case of an employee who became a
member of a retirement system of the commonwealth or a political subdivision thereof on or
after April 2, 2012 and who has least 30 years of creditable service; and
(viii) APPLICABLE ONLY TO TEACHERS
SECTION 45 . Section 28K of said chapter 32, as so appearing, is hereby amended by
striking out the first paragraph and inserting in place thereof the following paragraph: -
Page 7
Any employee of the commonwealth or its political subdivisions who is a representative of
an employee organization, which has included in its membership employees of the
commonwealth or its political subdivisions shall, while on a full-time or part-time leave of
absence for the purpose of acting as a representative of said employee organization, be
considered on leave of absence, without pay, for the period of the employee's assignment as a
representative of such employee organization. Such employee shall, however, be credited with
the creditable service the employee would have received had the employee been in active service
for the lull or part-time leave and shall contribute each month to the retirement fund in an
amount which the employee would have contributed had the employee remained in the service of
the commonwealth or its political subdivisions. Such employee of the commonwealth or its
political subdivisions shall be entitled to all benefits and privileges, except the payment of salary
as provided under this chapter and chapters 30 and 31 during the leave of absence.
SECTION 48 . Said chapter 32 is hereby further amended by inserting after section 90D
the following section:—
Section 90DY2. Any retirement system of a city, town, county, region, district or authority
may, upon the majority vote of the board of such system and by the local legislative body,
increase the retirement allowance of any member of the retirement system, who has been retired
under this chapter or similar provision of earlier law on a superannuation, accidental disability or
ordinary disability retirement allowance and who has completed at least 25 years of creditable
service, to an amount not to exceed $ 15,000 . For the purposes of this section, a vote of the
legislative body shall take place in the following manner: in a city, by a vote the city council
subject to its charter; in a town, by a vote at a town meeting; in a county, by a vote of the county
retirement board advisory council; in a region, by a Section 90DY2. Any retirement system of a
city, town, county, region, district or authority may, upon the majority vote of the board of such
system and by the local legislative body, increase the retirement allowance of any member of the
retirement system, who has been retired under this chapter or similar provision of earlier law on
a superannuation, accidental disability or ordinary disability retirement allowance and who has
completed at least 25 years of creditable service, to an amount not to exceed $ 15 ,000 . For the
purposes of this section, a vote of the legislative body shall take place in the following manner:
in a city, by a vote the city council subject to its charter; in a town, by a vote at a town meeting;
in a county, by a vote of the county retirement board advisory council; in a region, by a vote of
the regional retirement board advisory council; in a district, by a vote of the district members;
and for an authority, by a vote of its governing body.
SECTION 49. Section 91 of said chapter 32, as appearing in the 2010 Official Edition, is
hereby amended by inserting after the word "people", in line 16, the following words :- ;
provided, that the position from which the elected official retired was not a public office to
which the elected official had been elected by direct vote of the people, unless at least 1 year has
passed from the last clay the elected official held said public elected office.
SECTION 50. Said section 91 of said chapter 32, as so appearing, is hereby further
amended by inserting after the word "terminated" in line 92, the following words :- plus
$ 15,000 ; provided however that in the first year immediately following the effective date of
retirement, the earnings received by any person when added to any pension or retirement
Page 8
allowance the person is receiving shall not exceed the salary that is being paid for the position
from which the person was retired or in which the person' s employment was terminated.
i
SECTION 50. Said section 91 of said chapter 32, as so appearing, is hereby further
amended by inserting after the word "terminated" in line 92, the following words : - plus
$ 15 ,000; provided however that in the first year immediately following the effective date of
retirement, the earnings received by any person when added to any pension or retirement
allowance the person is receiving shall not exceed the salary that is being paid for the position
from which the person was retired or in which the person' s employment was terminated.
SECTION 51 . Section 91A of said chapter 32, as so appearing, is hereby amended by
inserting after the word "commission", in line 9, the following words : - ; provided, however,
that the commission may waive such filing by+ a member, if said member shall have been retired
for more than 20 years, has not reported any earnings for the prior 10 years and signs an affidavit
under the pains and penalties of perjury indicating that should the member realize any earned
income in the future the member will forthwith notify the commission of that fact and again
report under this section.
SECTION 54 . Section 7 of chapter 150E of the General Laws, as so appearing, is hereby
amended by adding the following paragraph:-
An employer entering into a collective bargaining agreement with an employee
organization shall provide a copy of the agreement to the retirement board to which the
employees covered by the agreement are members. All retirement systems shall maintain files of
all active collective bargaining agreements which cover the systems members. The retirement
board shall review collective bargaining agreements for compliance with chapter 32.
SECTION 55 . Notwithstanding any general or special law to the contrary, any member of
a retirement system presently receiving a retirement allowance who :
(a) retired under chapter 32 of the General Lawson or before May 17, 2004;
(b) elected Option (a) or Option (b) of subdivision (2) of section 12 of said chapter 32; and
(c) married a person of the same sex on or before May 17, 2005 may change such selection
to Option (c) of said subdivision (2) of said section 12 of said chapter 32 at the rate that was in
effect for that option on the member' s retirement date. The surviving spouse of a member that
would otherwise meet the requirements of clauses (a) to (c), inclusive, may change the election
made by the deceased member to Option (c) of said subdivision (2) of said section 12 of said
chapter 32 at the rate that was in effect for that option on the member' s retirement date.
In paying the retirement allowance under the new election, the board, as defined in section
I of said chapter 32, shall make appropriate adjustments, or arrange for appropriate repayments,
upon such terms and condition as the board may prescribe, so as to recover any overpayments
resulting from the prior election. The change of election under this section shall be made and
received by the applicable board not later than July 1 , 2012, and shall be retroactive to the. date of
retirement. The election to change retirement option under this section shall be in a manner
prescribed by the board, as defined in said section 1 of said chapter 32 and said board shall have
180 days after the submission of an application to implement the change.
p:VegaRperac memo attachmeraAattachmcnt to memo 36-2011 on c 1762011 12 07 kb.htm
Page 9
1 as--
w.
lVatertotun Craltributory 33etirealeat 313oarb
Administration Building
149 MAIN STREET - 1'.O. BOX 199
WATERTOWN, MA 02471 -0199
TEL (617) 972-6456 - TOLL FREE (888) 972-6456
FAX (617) 923-3531
THOMAS V. TIIIIIAUT, JR, Chairman DOMENIC ARONE, Elected Member
THOMAS J. TRACY, Ex-O(ficio JOHN T. LOUGHRAN, Appointed Aiember
KATHLEEN KIELY-BECCIIETTI, Filth Nlentber
May 29 , 2012
Watertown Town Council
Administration Building
Watertown, MA 02472
RE: Request for Acceptance of Local Options
Chapter 176 of the Acts of 2011
Dear Honorable Council Members :
As the Council was previously advised by letter of January 27 , 2012 , Governor
Patrick has signed into law Chapter 176 of the Acts of 2011 , An Act Providing for
Pension Reform. and Benefit Modernization ("the Act") . The law contained three local
options, one of which was addressed in the aforementioned letter and required no
action by the Retirement Board ,
We are writing to notify the Honorable Council of the Retirement Board 's acceptance
of the other two local options contained in the Act . The Board respectfully requests
the Council 's acceptance of these local options . The Board also respectfully requests
that the Council accept the local option pertaining to payment of Board member
stipends , as set forth in the Board's previously referenced correspondence .
Sections 29 and 30 of the Act' created a local option that will increase the minimum
monthly allowance contained in G . L. c . 32 , § 12 (2) (d) from $250 to $ 500 . This
' Sections 29 and 30 of Chapter 176 of the Acts of 2011 provides as follows:
SECTION 29. Said section 12 of said chapter 32, as so appearing, is hereby further amended by striking out, in
lines 211 and 212, the words "two hundred and fifty dollars" and inserting in place thereof the following words:$
250 or $500 a month, whichever is applicable to such spouse.
SECTION 30. Option (d) of said section 12 of said chapter 32, as so appearing, is hereby amended by inserting after the
tenth paragraph the following paragraph:-
Beginning April 2, 2012, the normal monthly member-survivor allowance provided for under this option to a spouse
of a deceased member shall not be less than $500 for members of the state teachers' and state employees retirement
system. This paragraph shall take effect for the members of a retirement system of any other political subdivision by a
majority vote of the board of such system and by the local legislative body. For the purpose of this paragraph, a
vote of the legislative body shall take place in the following manner: in a city, by a vote of the city council subject to
its charter; in a town, by a vote at a town meeting; in a county, by a vote of the comity retirement board advisory
council ; in a region, by a vote of the regional retirement board advisory council; in a district, by a vote of the district
May 29 , 2012
Page 2
section became effective on February 16, 2012 , and was applicable immediately for
member- survivors of the State Retirement System and State Teachers Retirement
System, and prospective upon acceptance for other retirement systems .
Section 12 (2) (d) benefits are paid to survivors of members who die while actively
employed . The benefit is equal to the yearly amount of the option (c) allowance to
which such member would have been entitled had his or her retirement taken place
on the date of death . If the member dies before attaining age fifty-five and before
being retired, the benefit is equal to the option (c) allowance to which the member
would have been entitled had the member attained age fifty-five at the time of death
and had retirement taken place on the date of death .
Payment of the increased benefit to eligible recipients is prospective only. The
Watertown Retirement System currently has five survivors who would be impacted by
acceptance of the law as amended, four of whom are octogenarians . Acceptance
would increase the System's current average monthly retirement payroll of
$900 , 000 . 00 by $232 . 05 .
The Public Employee Retirement Administration Commission actuary has confirmed
that acceptance of this local option would have a de minimus impact on the system's
actuarial liability . Please see attached spreadsheet detailing payments and liability .
Section 48 of the Act2 amends G . L. c. 32 , § 90D by adding a local option which would
establish a $ 15 , 000 minimum retirement allowance for retirees with in excess of 25
years of creditable service .
Payment of the increased benefit to eligible recipients is prospective upon acceptance .
The Watertown Retirement System currently has three survivors who would be
impacted by acceptance of the law as amended, one of whom is an octogenarian .
Acceptance would increase the System's current average monthly retirement payroll
of $900 ,000 . 00 by $840 . 75 . The Public Employee Retirement Administration
Commission actuary has confirmed that acceptance of this local option would have a
de minimus impact on the system's actuarial liability . Please see attached
spreadsheet detailing payments and liability .
members; and for an authority, by a vote of its governing body. Acceptance shall be deemed to have occurred upon
the filing of a certification of such vote with the commission.
'Section 48 of Chapter 176 of the Acts of 2011provides as follows:
Section 90D of Chapter 32, as so appearing, is hereby further amended by inserting after section 90D the following section:-
Section 90D( 1/2), Any retirement system of a city, town, county, region, district or authority may, upon the majority vote of
the board of such system and by the local legislative body, increase the retirement allowance of any member of the retirement
system, who has been retired under this chapter or similar provision of earlier law on a superannuation, accidental disability
or ordinary disability retirement allowance and who has completed at least 25 years of creditable service, to an amount not to
exceed $ 15,000. For the proposes of this section, a vote of the legislative body shall take place in the following maimer: in a
city, by a vote the city council subject to its
charter; in a town, by a vote at a Torun meeting; in a county, by a vote of the county retirement board advisory
council ; in a region, by a vote of the regional retirement board advisory council; in a district, by a vote of the district
members; and for an authority, by a vote of its governing body.
May 29 , 2012
Page 3
As indicated above, the Watertown Retirement Board has accepted these provisions,
and respectfully requests that the Honorable Council complete the acceptance
process by voting to accept the provisions of Sections 29 and 30 , and of Section 48 of
Chapter 176 of the Acts of 2011 .
If there is further information the Council would require, the Board would be pleased
to provide same .
Sincerely,
WOMk I/
Thomas V. Thibaut, Jr. , Chairman
/ bas
enclosure
Watertown Retirement opntem
Chapter 176 of the Acts of 2011
LOCAL OPTIONS
SECTIONS 29 & 30 INCREASING MINIMUM ALLOWANCE FROM $3,000.00 TO $6,000.00 PER YEAR
SURVIVOR DOB DOR=DOD ANNUALR/A ANNUAL INCREASE
1 07/27/47 10/28/93 4,633 .20 61000,00 1,366.80
2 11/28/27 08/04/84 5,582 .52 61000,00 417. 48
3 08/23/23 02/13/75 5,601. 60 61000,00 398.40
4 09/23/29 04/26/81 5,629. 56 61000,00 370,44
5 01/01/30 04/08/83 51768, 52 61000,00 231,48
SECTION 48 PROVIDES A MINIMUM ALLOWANCE TO RETIREES WITH 25+ YEARS OF SERVICE TO $15,000400
SURVIVOR DOB DOR= DOD ANNUALR/A ANNUAL INCREASE
1 02/08/25 01/02/86 61954,84 15,000,00 81045, 16
2 05/13/49 05/13/04 13,644.60 15,000,00 1,355.40
3 08/06/39 08/06/02 14,311.56 15,000,00 688.44
The current annual retirement allowances do not reflect the 3% COLA effective 07101112.
The COLA is granted on the first $12,000. 00 for a maximum annual increase of $360.00.
Acceptance of Sections 29 & 30 will increase the System's liability $20,000.
Acceptance of Section 48 will increase the System's liability $51 ,000.
Based upon the current funding schedule, the FY13 appropriation would increase by appros $8,500
and then increase by 4. 5% per year through FY22.
ToWN OF
163o WATERTOWN
Office of the Town Manager
Administration Building
~ 149 Main Street
Watertown, MA 02472
Michael J. Driscoll Phone: 617.972-6465
Town Manager Fax: 617.972-6404
www.watertown-nia.gov
t owmner(a)watertownana.eov
To : Honorable Town Council
From: Michael J. Driscoll, Town Manager
Date: August 10, 2012
RE: Miscellaneous Items
AaendaslMinutes/Denartmental Postings
As a follow up to one of the items at the August 1 , 2006 Town Council Work Session, attached please
find Agendas/Minutes/Departmental Postings from various Departments, Boards, Commissions and
Agencies received this week.
Traffic Commission — Mr. John Bartle
Attached please find an email regarding the subject.
Town Council Reauest for Information - Meters on Whites Ave
Attached please find an email regarding the subject.
SAFER Grant Undate
Attached please find an email and attachments regarding the subject.
76 Stanlev Avenue — New Reevclin¢ Center
Attached please find emails and attachments regarding the subject.
Watertown Contributory Retirement Board Aeenda Item "TO DISCUSS RESULTS OF.
01/01/12 ACTUARIAL VALUATION "
Attached please find an email and attachments regarding the subject.
Driscoll, Michael
From: Hand, JoAnna
Sent: Tuesday, August 07, 2012 6:34 PM
To: Town Councilors
Cc: Driscoll, Michael
Subject: FW: Agenda forTomorrow's Meeting
Attachments: S-080812.docx
Please see email and attachment
From: Barbara A. Sheehan rmailto: bsheehan(nlwatertownretirement.coml
Sent: Tuesday, August 07, 2012 6:09 PM
To: Hand, JoAnna
Subject: Agenda for Tomorrow's Meeting
Joanna :
It was just brought to my attention that I forgot to email the Retirement Board Agenda to Mr. Driscoll & The Council.
I apologize. Sandy is on vacation and she usually takes care of this.
Attached is the posted Agenda. Please let me know if there are any questions.
Barbara A . Sheehan , Director
WATERTOWN RETIREMENT SYSTEM
617 - 972 - 6456
1
Watertobmn QContributorp Retirement 93aarb
Wednesday, August 8, 2012
8:30 AM
Administration Building
149 Main Street - Watertown, MA 02472
PHILIP PANE HEARING ROOM (Lower Level)
• SCHEDULED TO ATTEND:
➢ 9:00 AM - Mr. Jim Lomenzo - PERAC
o To Discuss Results of 01 /01 /12 Actuarial Valuation
• Investment Review
➢ 10:00 AM - Fiduciary Investment Advisors - Manager Reviews
0 10:30 AM - MFS Institutional Equity (Via conference Call)
o 10:45 AM - Eamest Partners International Pooled Trust (Via Conference Cali)
• Schedule Next Monthly Meeting
• Examination of Minutes:
➢ From Meeting field on June 20, 2012
• Note Deaths of Members/Beneficiaries:
• Review PERAC Correspondence:
• Review Applications For Benefits:
➢ Involuntary Retirement Applicatlon:
➢ Applications for Membership:
• Review Injury Reports:
• Review/Approve Bills for Payment:
• Review Warrants:
• Director's Report
• Committee Reports
• Old/Unfinished Business
• New Business
• Travel/Education
Attorney Gibson Update
• Adjournment
PERAC
ITIVIAFNIT ITINIINT %' RATION COMMISSION
OOMENIC3. F. RUSSO, Gartman JOSEPH E, CONNARTON, &ecud a DirWor
Auditor SUZANNE M. BUMP I ALAN MACDONALD I DAMES M. MACHADO I DONALD R, MAROUIS I ROBERT B. McCARTHY I GREGORY R. MENNIS
July 18, 2012
Barbara Sheehan �7
Watertown Retirement Board zU c f77
m ; � r
Administration Building m N
P.O. Box 199 z
149 Main Street Ny
Watertown, MA 02471Zn
rn � L7
Dear Ms. Sheehan; K
The principal results of the January 1 , 2012 actuarial valuation of the Watertown
Retirement System are shown on the enclosed exhibit. Using an investment return
assumption of 8.0% (the assumption used in the prior valuation), the actuarial accrued
liability is approximately $ 172.3 million. The actuarial value of assets is approximately
$ 101 .7 million. The difference of $70 .6 million represents the unfunded liability (UAL)
on January 1 , 2012 . The funded ratio is 59 .0%.
Plan Experience
Buck Consultants, Inc. performed the most recent actuarial valuation as of January 1 ,
2010. Since we did not perform this valuation, it is difficult to reconcile and compare our
results to those of the 2010 valuation. However, we found the 2010 valuation results to
be reasonable and our results based on the 2010 assumptions are comparable to Buck's.
In performing the valuation, we noticed the reported pay was about the same as the pay in
the 2010 valuation. However, our understanding is that several contracts have settled
effective July 1 , 2011 but most of these contracts were settled in 2012 and are retroactive
to July 1 , 2011 , Therefore the pay provided to us does not reflect the annual rate of pay.
We adjusted the plan costs and liabilities by 2.5% to reflect these changes but did not
adjust the reported pay. We believe this is a conservative approach.
To perform the gain/loss analysis, we brought forward the 2010 valuation results to 2012
using standard techniques and compared the results before the mortality changes
described below. It appears Buck used our standard local system retirement, disability,
and turnover assumptions in their 2010 valuation. They used a flat 5% salary increase
assumption which is comparable to our graded assumption based on job group and years
FIVE MIDDLESEX AVENUE, SUITE 304 1 SOMERVILLE. MA 02145
PH 617 666 44461 FAX 617 628 4002 1 TTY 617 591 8917 1 W W W.MASS.GOV/PERAC
Barabara Sheehan
July 18, 2012
Page Two
of service. We estimate that there was a small loss on plan liabilities (the actuarial
liability exceeded the expected actuarial liability) from the prior valuation of
approximately $200,000 over the 2-year period. We expect a portion of this loss reflects
the change in actuarial software. However, since we did not perform the prior valuation,
we cannot readily determine the magnitude of the various components of the loss.
Plan Assets
The Watertown Retirement Board previously adopted an asset smoothing technique in
determining the actuarial value of assets . We maintained the methodology used by Buck
in determining the actuarial value of assets. As of January 1 , 2012, the actuarial value of
assets is $ 101 .7 million compared with the market value of $92 .4 million. The rates of
return on a market value basis in 2010 and 2011 were 13 .7% and -0 .4% respectively. In
the 2010 valuation, due to the significant investment loss in 2008, the calculated actuarial
value of assets was approximately 120% of the market value. Therefore, Buck used the
asset corridor ceiling of 110% of the market value. The calculated actuarial value of
assets as of January 1 , 2012 is just over 110.0% of the market value and therefore, the
corridor still applies. The remaining deferred investment losses from 2008 of
approximately $6.6 million will be recognized in the next actuarial valuation.
Investment Return Assumption
PBRAC ' s "standard" investment return assumption continues to be 8 .0%. This has been
our standard assumption (assuming a reasonable asset allocation) for over 15 years. We
believe this assumption continues to be reasonable as of January 1 , 2012. However,
based on the current environment, asset allocation, and future expected returns, we might
recommend in the next few years that the investment return assumption be decreased.
The trend both in Massachusetts and across the country over the past 10 years has been to
reduce this assumption.
A reduction in the investment return assumption would increase the plan' s liabilities.
However, we also expect that after we complete an experience analysis, the salary
increase assumption will decrease and such a change will decrease plan liabilities. A
change in the salary increase assumption would mitigate a portion of any increase in
liability due to a change in the investment return assumption. We expect to examine
these issues more carefully over the next few years and as part of the January 1 , 2014
actuarial valuation.
You asked about the impact of a 7.75% investment return assumption. A rough estimate
of this change (without adjustments to the salary increase assumption) is that it would
Barabara Sheehan
July 18, 2012
Page Three
j
increase the normal cost by approximately $200,000 and the actuarial accrued liability by
approximately $4. 1 million.
Expenses
We have generally included administrative expenses paid by the plan in the development
of normal cost in our actuarial valuations since 1998. However, that is not the case with
investment related expenses. For most local systems, the investment return assumption
has generally been net of investment related expenses. More recently, we have begun
reflecting a portion of investment related expenses in our valuations. We used an
expense assumption of $450,000 in this valuation which reflects approximately $ 165,000
of investment related expenses. Over time, we expect the total administrative and
investment expenses to be included in the normal cost. Alternatively, a lower investment
return assumption can achieve a similar result.
Mortality Assumption
In local actuarial valuations performed by PERAC as of January 1 , 2010, we used the
RP-2000 mortality table (Buck used the same table in your valuation). This is a standard
table we have used for the past 10 years and was based on an experience analysis of local
systems we performed in 2002. A recent revision to the actuarial standards of practice
requires that future mortality improvements (longer life expectancy) be considered in
valuations performed after July, 2011 . To begin recognizing this change, as part of our
January 1 , 2011 local actuarial valuations, we used the RP-2000 mortality table adjusted
10 years with Scale AA to reflect improved mortality . For this valuation, to reflect future
mortality improvement, we have extended this mortality improvement scale beyond
2012 . These combined changes increase the total normal cost by approximately $60,000
and the total actuarial accrued liability by approximately $3 .8 million.
Net 3(8)(c) Reimbursements
In prior valuations, a common assumption made by actuaries was that §3(8)(c) payments
paid from a system approximately equal §3 (8)(c) payments paid to the system. The
Watertown Retirement System reported net 3(8)(c) disbursements ranging from $83,000
to $ 137,000 in the past 5 annual statements, In order to better reflect the actual cost to the
System, we have included an expected net 3(8)(c) payment of $ 120,000 in the funding
schedule.
Barabara Sheehan
July 18, 2012
Page Four
Funding Schedules
The plan's current schedule was adopted in 2010. The schedule has a 4. 5% annual
increasing amortization of the UAL until FY22 with an appropriation of $9,335,898 for
FY13 .
We have included two funding schedules for consideration. The FY13 appropriation was
maintained from the current schedule in each schedule.
Alternative 1 amortizes the unfunded liability on a 4.5% increasing basis until FY22
(same as the current schedule). This schedule is significantly greater in FY14 than the
amount under the current schedule ($9.72 million).
Alternative 2 amortizes the unfunded liability on a 4.0% increasing basis until FY25 .
The schedule was designed to be comparable to the amounts shown in the current
schedule for the next several years. We had intended to provide a schedule with a 4.5%
increasing amortization but if we extended to FY24, the FY14 appropriation was
significantly greater than $9.72 million and if we extended to FY25, the FY14
appropriation was significantly less than $9 .72 million.
Our understanding is that an additional appropriation of $250,000 will be made by the
town in FY13 . It is also possible that the town will continue to make an additional
appropriation of $250,000 each year. The attached schedules do not include any
additional appropriation for FY13 or future years . If this additional appropriation were
made each year, a schedule similar to Alternative 2 would be reduced by approximately
one year.
$14,000 COLA Base
The Board requested we estimate the impact of adopting an increased COLA base of
$ 14,000. If the increased COLA base were adopted, it would increase the total normal
cost by approximately $38,000 and increase the total actuarial accrued Iiability by
approximately $ 1 ,760,000 . Based on the Alternative 1 funding schedule, the
appropriation for FYI 3 and future years would increase approximately $252,000.
We recommend that if a system increases the COLA base, there should be a
corresponding increase in appropriation to recognize the cost of the benefit enhancement.
Alternatively, the System could adopt a schedule that maintains the current appropriation
Barabara Sheehan
July 18, 2012
Page Five
levels by extending the amortization of the UAL. For the $ 14,000 COLA base, this
would mean extending Alternative 1 about one year. Again, although this methodology is
allowable, we do not recommend such an approach.
Other Considerations
We use the phrase "things will get worse before they get better" in dealing with the 2008
investment loss. As of January 1 , 2012, the System has recognized 80°/" of the 2008 loss
(gains and losses are recognized 20% per year). The January 1 , 2014 valuation will
recognize the final 20% of that loss. We expect that you will likely have to extend your
schedule when you do the 2014 valuation just to maintain the appropriations in the
proposed schedules. We have found systems generally need 1 S%-20% returns just to
maintain their appropriation level as more of the 2008 loss is recognized. This gives you
a sense as to the impact of the 2008 loss.
We are available to meet with the Board and/or discuss alternative funding strategies for
the Board's consideration. Please call me with any questions.
Sincerely,
J s amenzo
Actuary
JEC/jrl
p;1acivarialvaluat0watertown 2012 letter.doc
Enclosures
Exhibit 1
Watertown 2012 Valuation Results and Comparison to 2010 Valuation
1/1/2012 1/l/2010
Actuary PERAC Buck
Principal Assumptions
Investment Return 8.00% 8.000/0
Salary Varies 5,00%
Number of Members on Valuation Date
1 . Active Members Soo 475
2, Vested Terminated Members 17
3. Retired Members and Survivors 416 414
4, Total 933 889
Total Regular Compensation of Active Members 255819,598 25,4035413
Average Compensation 513637 53,481
Total Normal Cost 32947,891 3,861 , 124
Expected Employee Contributions 2.276.889 2180J I6
Net Employer Normal Cost 1,671 ,002 1 ,681 ,008
Actuarial Accrued Liability
Actives 7857447426 69,135,665
Vested Terminated Members 11524,621 0
Non-Vested Terminated Members $ 10,036 21657,060
Retirees and Survivors 9 1 X 233 8441704410
Total Actuarial Liability 172,290,316 155,963 ,135
Assets (Actuarial Value) 1012677,187 9%432,797
Unfunded Actuarial Liability (Actuarial Value) 702613,129 66,5301338
Funded Ratio (Actuarial Value) 59.0% 57.3%
F:lactuarOVALUATMWatertown 2012 Funding and ahtbtts.xIs
Alternative I
8.0% Investment Return
Watertown Retirement System
January 1, 2012 Actuarial Valuation
Amortization of Unfunded Liability 4.5% increasing until FY22
Fiscal Normal Net Amort. of Total Unfunded
Year Cost 3t8W UAL Cost Act. Liab.
2013 2,187,842 12%000 7,02%056 %335,898 73,437,645
2014 2,297,234 1203000 93059,827 112476,061 719722,356
2015 25412,096 1202000 %4663474 111998,570 67,676,611
2016 215322701 120,000 928927463 12,5457166 62,866,948
2017 2,6S93336 12%000 103337,626 13, 116,962 5752123441
2018 2,792,303 1202000 100802,820 13,715,122 50624,800
2019 2,931,918 120,000 IL288,946 149340,864 43,007,739
2020 3,07%514 12%000 1I,7969949 14,995,463 34,256,296
2021 3,2321439 1201000 12,3271812 15,680,251 241256,095
2022 3,3942061 1207000 12,882,563 16,3961624 12,882,546
2023 3,563,764 120,000 0
FY13 appropriation maintained at the same level as the current schedule.
Appropriation payments assumed to he made July 1 of each fiscal year.
Normal cost assumed to increase 5.03/o per year.
Assumed expenses of$450,000
P:IactuarialVALUATBIWatertown 2012 Funding and exhibirs.xls
Alternative 2
8.0% Investment Return
Watertown Retirement System
January 1, 2012 Actuarial Valuation
Amortization of Unfunded Liability 4.0% increasing until FY25
Fiscal Normal Net Amort. of Total Unfunded
Year Cost Ma c UAL Cost Act Liab.
2013 2, IS7,842 12%000 71028,056 %3351898 73,437,645
2014 2,297,234 12%000 7,293,589 9,7107823 %722,356
2015 2,412,096 12%000 79585,332 107117,428 6%583,069
2016 2,5323701 12%000 7,888,745 1%5411446 66,9573555
2017 2,65%336 1202000 %204,295 103983,631 63,794,315
2018 2,792,303 120,000 9/5129467 11,444,770 60,0372221
2019 22931,918 120,000 82873,766 11,925,683 55,625,134
2020 3,0787514 12%000 99229,716 123427,230 5%4912478
2021 3,232,439 1203000 9,5975865 12,950,304 441563,782
2022 33394,061 1205000 9,981,780 13,495,841 372763,191
2023 3,5632764 1209000 107381,051 147064,815 303003,924
2024 3,7417952 12%000 102796,293 145658,245 2151929703
2025 3,92%050 120,000 11,228,145 15,277, 195 11 ,228, 122
2026 4,125,503 120,060 0
FY13 appropriation maintained at the same level as the current schedule.
Appropriation payments assumed to be made July I of each fiscal year.
Normal cost assumed to increase 5.0% per year.
Assumed expenses of$4507000
P.Iactuortal FALMMWaterimn 2012 Fandingand exhlbits.xls
Expenditure Forecast
State assessments, exclusive of the MBTA assessment, are projected to
increase 2 . 5 % annually. The MBTA assessment is projected to increase
2 . 75 % annually.
0
The Watertown Contributory Retirement Board's current funding schedule
has the Retirement System being fully funded by the end of FY2022 . In
order to remain on the same FY2022 schedule, the principal results of the
January 1, 2012 actuarial valuation indicates the Retirement appropriation
would need to increase $ 2, 140, 000 in FY2014, $ 520, 000 in_ FY2015 ,
$ 550, 000 in FY2016, which represents a projected increase of $ 3, 210, 000
in the Retirement appropriation over the next 3 fiscal years .
_ The Expenditure Forecast includes increases in the Retirement appropriation
of $ 1, 250, 000 in FY2014 and FY2015 ; and an increase of $ 750, 000 in
FY2016, which represents a projected increase of $ 3, 250, 000 in the
Retirement appropriation over the next 3 fiscal years .
Any revised funding schedule is subject to approval by the Public Employee
Retirement Administration Commission (PERAC) .
44
Expenditure Forecast
Health insurance costs, included within insurance & employee
benefits, are projected to increase 5 % annually from FY2014
through FY2016 .
Debt figures are from current and future debt as listed in the FY2013
- FY2017 CIP/Debt Projection Table of the Capital Improvement
Program . The level of projected debt may change pending
decisions on various projects that are listed within the Proposed
FY2013 - FY2017 Capital Improvement Program, the Facilities
Assessment Study, and the Roadway Management Study.
Town & School Capital Projects are listed in the Capital Improvement
Program .
Street & Sidewalk Improvements are projected to increase 5 %
annually.
45
TOWN OF WATERTUvVN
NEXT YEAR BUDGET COMPARISON REPORT
i FY 2013 FY 2013 FY 2013
FY 2012 FY 2012 LEVEL 2.5 k ADDITIONAL
FY2011 ORIGINAL REVISED SERVICE REDUCTION FUNDING MANAGER
ACTUAL BUDGET BUDGET BUDGET BUDGET REQUESTS RECOMMENDS
0191151 RETIREMENT BENEFITS
0191151 510166 UNFUNDED PEN, LIAB, PAYDWN 250,000
0191151 510171 CONTRIBUTORY $ 81376,278 8,699,636 81699,636 91063,290 %0631290 9,063,290
0191151 510172 NON-CONTRIBUTORY $ 722050 73, 130 73,130 74,210 74,210 74,210
0191151 510179INDEMNIFICATION $ 49,917 508000 501000 50100D 50,000 50,000
TOTAL RETIREMENT BENEFITS $ B,498,245 818229766 81822,768 91187150D 91187,500 - 9,437,500
� 13
Page 39
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Expenditure Forecast
, Source FY2013 FY2014 FY2015 FY2016
State & County
Charges $ 21239 , 561 $ 2 , 300, 620 $ 2 , 363 , 332 $ 21427, 755
--� Pension Costs $ %4371500 $ 10 , 688, 580 $ 11 , 939 , 660 $ 12 , 6901740
food
Insurance &
Employee
Benefits $ 13 ,499 ,490 $ 14, 164, 725 $ 14,958, 290 $ 151800 ,407
47