Administrative costs for locally run pension systems in Massachusetts average at least three times more than the state-run systems, according to the Pioneer Institute.

A study Pioneer released on Wednesday called for absorbing the 102 local systems into the Massachusetts State Employees' Retirement System and the Massachusetts Teachers' Retirement System.

Such a move, said the Boston-based, free-market oriented think tank, would "not only eliminate the regulatory whack-a-mole, but also save an estimated $25 million to $30 million annually in administrative and investment expenses."

Senior fellow for finance Iliya Atanasov and research director Greg Sullivan co-authored the report.

"I think what's significant is the shocking amount of money some of these systems are spending on administrative costs," Atanasov said in an interview. "These are separate from investment fees."

According to Pioneer, which culled data culled from the systems' audit reports, MSERS in 2012 spent $61 per member on administration, whereas the weighted-average local expenditure was more than 200% higher at $186 per member.

In Pioneer's multiyear sample, the 40 highest administrative costs per member ranged from $341 to $971 in a single year.

"The significance of local retirement boards is made clear by their massive enrollment," said the report. Their 210,000 members in 2015 accounted for about 40% of the 520,000 members of public pension systems in Massachusetts.

"With so many pensions and so much money at stake, the performance of local retirement systems has immense repercussions," said Pioneer. Massachusetts law requires public employers to make up for any shortage of funds necessary to cover earned benefits.

"Because public pensions have been chronically underfunded, every extra penny spent by the retirement systems is a penny less in the taxpayers' pockets or adds to the burden on cash-strapped local budgets."

The state system, said Atanasov, has more resources and better economies of scale due to market power. "Another reason is that the state system has a lot more oversight," he added.

A February Pioneer report argued that the non-state public pension systems in Massachusetts effectively forfeited $1.6 billion from 2000 to 2015 alone by not investing with the state's Pension Reserves Investment Management Board.

Several local systems appeared to be spending excessively on the investment side as well, said Pioneer. The report cited 22 systems that repeatedly produced investment-expense ratios of 65 basis points or higher.

By contrast, it said, MSERS had an expense ratio from 46 to 54 basis points on average assets from 2002 to 2012, compared with the local composite range of 50 to 60 basis points for that period.

While municipal systems manage public pensions for municipalities and their subunits, hundreds of smaller communities enroll in larger, multiemployer systems.

In addition, certain special districts and state authorities, such as the Massachusetts Port Authority, have their own independent retirement boards. Massport and the Massachusetts Housing Finance Agency ranked high in expenditures per member, according to the report.

The systems are also fraught with fiduciary risks, according to Pioneer. It cited Plymouth County's retirement systems filing 14 lawsuits over a decade that netted roughly $40,000 for the pension fund and more than $40 million for law firms.

Federal authorities are investigating the matter.

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Paul Burton

Paul Burton

Paul Burton is the Northeast Regional Editor for The Bond Buyer and the author of the book "Tales from the Newsrooms." He is a sought-after public speaker and has appeared on radio and TV shows, including former CBS News White House correspondent Sharyl Attkisson’s public-affairs program, “Full Measure.”