ANALYSIS

Massachusetts special commission recommends system changes

photo_lg_massachusettsA recently completed report by a special commission into the appropriateness of the Massachusetts retirement system contemplated the defined benefit versus defined contribution benefit design, concluding that the existing defined benefit structure was optimal, in part because it put the portfolio management in the hands of professionals.

The report entitled, The Special Commission to Study the Massachusetts Contributory Retirement Systems, concluded that a defined benefit structure assured participants of the most secure source of retirement income and puts the portfolio management in the hands of professionals, thereby circumventing the widespread tendency of individual investors to make basic errors investment decisions.

The special commission met 10 times between March and October with a process of review that began with extensive background analysis identifying the principles underlying an efficient and effective system and then comparing the Massachusetts system to that.

From this process it adopted 32 proposals to improve the system, create a fairer and more effective system, share retirement costs between employers and employees as well as improving the funding.

Two of the more interesting recommendations include more resources dedicated to system administration and to require judges to, finally, contribute to their schemes.