Strong local government may be a point of pride in New England, but the theft of $739,000 from the Maynard pension fund speaks to the dangers of leaving complex public functions to small local agencies. After some tentative steps away from the tradition of local control, the state must accelerate its efforts to consolidate such pension systems.
As the Globe’s Beth Healy recently detailed, former pension official Timothy McDaid took advantage of a lack of adequate supervision of the Maynard retirement system and helped himself to hundreds of thousands of dollars from the fund. The theft only came to light after McDaid, who was struggling with an opiate addiction, was convicted of stealing $165,000 from a charity with which he was associated. Tellingly, Maynard officials only learned of the conviction six months after the fact — after an anonymous tipster faxed over court documents from the case involving the charity.
Certain safeguards in the system failed; the Middlesex County district attorney’s office should have notified the Town of Maynard that the person overseeing its pension fund had stolen from an outside client. Yet it’s not clear town-level officials can supervise retirement systems closely enough.
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When hiring McDaid in 2007, officials in Maynard didn’t check McDaid’s references. Even before his conviction, there were signs of lax oversight. In 2011, the state’s Public Employee Retirement Administration Commission complained of accounting irregularities at the Maynard fund.
Bureaucratic failures also bedevil much larger agencies, of course, but the small scale of Maynard’s retirement board surely didn’t help. McDaid was ostensibly helping out by writing checks and reconciling bank records himself, but this improvisational approach to management likely made abuses easier. A larger, more sophisticated agency with multiple eyes on the books likely wouldn’t have been victimized as easily.
Maynard’s problems with McDaid dovetail with a broader critique of small local pension boards. Massachusetts has more than 100 separate retirement systems, and the smaller ones can’t easily afford the level of professional expertise that exists at the state’s Pension Reserves Investment Management board, or PRIM. Many local boards hire their own investment consultants and send members to conferences in attractive locales. Merging smaller boards in with the much larger state system would cut down on overhead and could improve returns. According to the most recent state-issued annual report on retirement boards, Maynard, which had about $34 million in reserves, slightly outperformed PRIM between 2009 and 2013. But the state system, with its $58 billion in reserves, achieved strikingly better results over a longer period. From 1985 to 2013, the state system’s average return was 9.8 percent — 1.8 points higher than Maynard’s.
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Over the years, Beacon Hill has put some pressure on severely underperforming local retirement boards. In 2007, lawmakers required local retirement boards to transfer their assets to the state system if their assets cover less than 65 percent of their obligations and if their returns fall 2 percentage points below PRIM’s over a 10-year period. Yet consolidation has benefits even for less troubled boards.
It’s possible, of course, for smaller boards to be run more professionally, and with more outside oversight. The Legislature could opt, for instance, to require more frequent and more detailed audits of local pension systems that continue to go it alone. But why expend more energy keeping needlessly tiny retirement systems on the up-and-up? The smarter course would be to merge multiple retirement systems into a more transparent whole.