Policy Documents

The Fiscal Implications of Massachusetts Retirement Boards’ Investment Returns

Iliya Atanasov –
October 1, 2012

Throughout the US, the number and scope of defined-benefit pension plans have been on the wane for over a quarter century. Many private-sector workers have had their benefits wiped out by bankruptcies and fire sales of distressed businesses despite the legislative push from pay-as-you-go to fully funded pension plans. Meanwhile, funded government-backed retirement systems have suffered massive investment losses from the dotcom and real-estate bubbles. Massachusetts has managed to preserve most of the benefits for its 500,000 retirees and active public employees, but its retirement system has been hit hard by the sharp decline and increased volatility of asset prices. The persistently strenuous economic conditions impose some tough choices regarding the state’s approach to funding its pension obligations, as retirement funds have largely failed to adjust their investment-return assumptions to the new asset-markets realities. Consequently, taxpayers and public employees alike could benefit from a timely reevaluation of the retirement system’s actuarial standards and, most importantly, the pension funds’ assumed rates of return (ARR).