New Disclosure Requirements for Massachusetts Pension Investments

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The Commonwealth of Massachusetts has started implementing pension reform legislation enacted in 2011 that imposes demanding contracting and disclosure requirements on state and local pension fund boards. The new pension fund rules – particularly those requiring disclosure of service provider compensation – are sweeping in their scope and may present compliance challenges to investment managers and other investment service providers that accept mandates to provide services to any of the more than 100 public pension plans in the Commonwealth, the assets of which total more than $50 billion.

The 2011 legislation added Section 23B to Massachusetts General Law Chapter 32, which describes the processes which Massachusetts public pension plans must use in procuring services from third-party vendors and governs the terms of the relationship between such pension plans and their investment service providers, including investment managers. Over the past year, the Massachusetts Public Employee Retirement Administration Commission (“PERAC”) has released a number of explanatory memoranda describing and interpreting the statutory changes. While the new requirements have some similarities to service provider fee disclosure requirements for nongovernmental retirement plans imposed recently under the federal law known as ERISA, the PERAC rules in some respects reach well beyond the ERISA requirements.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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