Audit of the Pension Reserves Investment Management Board

This is a state performance audit of the Pension Reserves Investment Management Board, covering July 1, 2015 through June 30, 2017.

“In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor has conducted a performance audit of the Pension Reserves Investment Management Board (PRIM) for the period July 1, 2015 through June 30, 2017.”

Auditors looked at whether PRIM followed its rules when hiring investment and professional service firms, and whether certain staff travel costs made sense.

“In this performance audit, we examined PRIM’s compliance with its policies and procedures for procurement of investment management and professional services, as well as the reasonableness of certain travel expenses incurred by PRIM staff members.”

PRIM oversees investments tied to public retirement money, including state employees, teachers, retirees’ benefits, and some local retirement systems.

“The PRIT Fund, established by the same legislation, is the investment portfolio for the assets of the Massachusetts State Employees’ Retirement System, the Massachusetts Teachers’ Retirement System, the State Retiree Benefits Trust Fund, and other Massachusetts retirement systems that elect to invest in the fund.”

If your retirement system invests in PRIT, its earnings are shared based on how much of the fund your system owns.

“Participating and purchasing retirement systems both share in the investment earnings of the PRIT Fund based on their proportionate share of net assets invested.”

The audit says PRIM passed the checks auditors performed on procurement and travel expenses.

“Below is a list of our audit objectives, indicating each question we intended our audit to answer and the conclusion we reached regarding each objective.”

The report does not list fixes or enforcement steps; it notes the longer-term goal that the PRIT Fund be fully funded by 2040.

“Under Section 22C of Chapter 32 of the Massachusetts General Laws, by 2040, the PRIT Fund should be fully funded to meet the Commonwealth’s then-existing pension obligations, through annual payments made to the fund in accordance with a funding schedule approved by the Legislature and through the accumulation of investment returns in the fund.”

This audit involves a very large public investment fund: PRIT held about $66.85 billion in net assets in fiscal year 2017.

“Net assets in the PRIT Fund totaled $60,692,805,000 for fiscal year 2016 and $66,850,441,000 for fiscal year 2017.”

“Long-term actuarial rate of return” means an estimate, stated as a percentage, of expected investment gain or loss over time.

“A long-term actuarial rate of return is an estimate of the expected value of gain or loss on investment over a time period, expressed as a percentage of the investment cost.”