Administration April 4, 2008

Massachusetts May Remove Pension Fund Board

April 28, 2006 (PLANSPONSOR.com) - The state of Massachusetts is considering ousting the board that governs one of its largest pension funds, in light of an investigation by the state's inspector general that found the board falsified construction bids to benefit contractors favored by the Middlesex County board members.

Reported by

Adrien Martin

According to the inspector general’s report – which was obtained by the Boston Globe – the “fabricated” bids were to ensure that the contract for the reconstruction of the new Middlesex headquarters went to a contractor close to two board members, and claimed the bid documents were created to give an appearance of competition, when none existed.

”The board’s actions in this matter represent a profound breach of public trust and a misuse of beneficiaries’ money,” Inspector General Gregory Sullivan said in an 11-page letter to the Public Employee Retirement Administration Commission, or PERAC, which oversees the state’s 106 public pension systems, which was obtained by the Globe.

Middlesex chairman Thomas Gibson told the newspaper that the inspector general’s findings were unfounded, and that pension systems were not subject to state’s competitive bidding requirements for this project anyway.

Regardless, the inspector general in its report said: ”No exemption from any law gives license to create false documents designed to give the impression of a competitive process.”

The inspector general’s move follows a string of disclosures at the Middlesex system, which has about $660 million in assets and about 14,000 active and retired members in 54 cities and towns, according to the Globe report. In 2003, for instance, the system lost $37 million, or 7% of its value, in the currency markets.

PERAC voted on Wednesday to install an overseer for the Middlesex system, and to have a hearing next month on the future of the board, the Globe reported. The removal of the board may lead to the shifting of the assets of the pension fund into one more acceptable by the pension regulator.

Sullivan also charged that the original contractor for the roughly $600,000 job to reconstruct the headquarters was fired for not accommodating to subcontractors favored by the board members, the newspaper reported. Then another contractor that was a friend to one of the board members was hired for the job.