Massachusetts should set a five-year deadline for 102 local, regional and agency public pension systems to transfer their assets to the Pension Reserves Investment Management Board, the Pioneer Institute argues in a report.

PRIM, with $62.5 billion in assets gross of fees as of Dec. 31, manages the Massachusetts State Employee Retirement System and the Massachusetts Teachers Retirement System. The commonwealth is also home to 102 agency, local and regional public pension systems, which can make their own investment decisions.

"Many of these local boards have fallen on hard times through a combination of poor management practices, insufficient contributions and unsustainable benefits," said Iliya Atanasov, author of the report and a former senior fellow for finance at Boston-based think tank Pioneer.

From 1986 to 2015, said Atanasov, the difference in gross returns between nonstate public pensions and PRIM implies a taxpayer loss of more than $2.9 billion. He said the systems forfeited nearly $1.6 billion from 2000 to 2015 alone by not investing with PRIM, or $97 million a year.

"We were really surprised," Atanasov said in an interview. "We knew there was some lag of the local systems behind the state board, but when we obtained the first set of numbers and started checking, we found it was absolutely big."

Atanasov, whose research has included pension management, budget analysis, infrastructure and municipal performance, called on the state legislature to act. A 2007 law required that pension systems less than 65% funded and whose average returns trailed PRIM's by at least 2 percentage points over the prior decade transfer their assets to PRIM.

He said that law was a step in the right direction, but did not go far enough. For example, according to Atanasov, a system with annualized returns of 8% over a decade would reap 20% more than one whose returns were two percentage points lower.

"Local taxpayers are ultimately on the hook when pensions are underfunded," said Pioneer executive director Jim Stergios. "This is going to sound really elementary, but it's critical we don't forfeit billions of dollars in investment returns."

Even before the 2007 law, more local systems had begun to move their assets to PRIM, according to the study, released Friday. Between 2000 and 2015, the number of local systems fully invested in PRIM nearly doubled from 19 to 37, and those partially invested more than tripled from 17 to 53.

From 1986 to 1996, PRIM achieved annualized gross returns of 11.45%, while systems that were partially invested achieved 10.62% percent and returns for non-PRIM funds were 10.32%.

From 2000 to 2015, PRIM's annualized gross returns were 5.8%, partially invested systems generated 5.4% and non-PRIM systems returned 5.3 percent. The gulf for both time spans, said Atanasov, adds to an unrealized $2.09 billion, not including forgone compounding and PRIM's lower fees.

Short of the five-year deadline for transferring local pension assets to PRIM, said Atanasov, state policymakers should at least require all local systems less than 90% funded to transfer their assets. Municipalities, he added, should also have the power to compel local retirement boards to move their assets to PRIM. Retirement boards have a broad range of investment options under PRIM's segmentation program.

"The best way to beat the market is to be efficient and a large fund like PRIM can do that," said Atanasov. "It's a completely different ballgame for a small town with $100 million or $200 million on their account."

PRIM, he said, offers better asset allocation and cash management, lower investment fees and other costs, and more attractive investment options due to its size and market power. "PRIM has been able to build internal capacity and professionalize its operations the past 10 years, and cut fees," he said.

The real performance gap is almost certainly much larger, said Atanasov, since the estimates were based on annual beginning assets and gross returns, which don't account for PRIM's lower investment expenses and the effects of compounding.

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