Methuen, State Deadlocked Over Transferring Pension Funds

By Edward Mason, The Eagle-Tribune, North Andover, Mass.

Jun. 25–BOSTON — A state agency is considering ordering Methuen to “obey the law” in turning over its $80 million retirement fund to the state.

A state law passed last year requires underperforming municipal pension funds to be absorbed by the state’s $52 billion pension fund.

If the city continues to refuse, the dispute could end up in court.

At a meeting yesterday of the state Public Employee Retirement Administration Commission, which oversees the Methuen Retirement Board, Chairman Domenic Russo said the threat to “obey the law” would force both sides to reach an agreement. The vote on issuing the order was put off for a month.

“I want to pressure (the state) and Methuen to resolve this,” Russo said.

Michael Sacco, the Methuen Retirement Board’s attorney, said the board will consider what to do at its next meeting tomorrow morning.

“They’ll have to decide if any further course of action is taken,” Sacco said.

Michael Travaglini, executive director of the Public Reserves Investment Trust, the state pension fund, said in an interview there is no room for compromise. He said the state fund’s position is clear. It asks everyone to liquidate their investments to cash, and that’s what it wants from Methuen.

“When they’re prepared to give us cash, we’re prepared to help them in the transition,” Travaglini said.

With the state holding its ground, both sides could end up in court if Methuen doesn’t buckle.

“If it’s not resolved, it’s going to be a long, drawn out litigation,” said Joseph Connarton, Public Employee Retirement Administration Commission’s executive director.

The order, Russo said, would instruct Methuen to “obey the law.” But what is the law is unclear, and Russo said it would be up to a court to decide.

An underperforming pension fund would have a rate of return over 10 years of 2 percentage points less than the state’s, and have a funded ratio less than 65 percent. Methuen’s 10-year rate of return was about 8 percent, while the state’s return was just over 10 percent, while the funded ratio was 55 percent.

The law does not lay out exactly how the assets are to be transferred.

Methuen contends it already tried to transfer control of its assets to the state, but that the state wouldn’t take them. If it can avoid selling the assets, that would be preferable. The Methuen Retirement Board is concerned about the cost of selling off its investments in a bear stock market, as well as the cost of performing the transaction.

The Public Employee Retirement Administration Commission met yesterday after Sacco’s request for an explanation of what the law requires.

“Different people have different views of what the law means,” Sacco said.

Moreover, Sacco said Public Reserves Investment Trust in the past has accepted investments instead of cash.

Public Reserves Investment Trust believes state law requires the Methuen Retirement Board to sell its investments and give the cash to the state to manage.

Travaglini said it doesn’t make sense for the state to take Methuen or any other city’s investments and manage them. Rather, they’d spread the cash out over its existing investments and share the return with the local pension fund.

Connarton said the Methuen Retirement Board is hurting its retirees. The fund lost $2.1 million in earnings it would have accumulated had it made the transfer last year.

Sacco, who said he’s been unable to get advice from Public Employee Retirement Administration Commission as to whether Travaglini can force the asset sale, said it’s not Methuen’s fault.

“We tried to transfer. We did lose $2 million,” Sacco said. “Whose fault that is remains to be seen.”

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