When investing, bigger is better

Trustees of pension plans ought to make sound judgments about investments and about how they spend their time. The decision by two members of the Newton pension board to go to Hawaii for a supposedly work-related conference underscores the need for local pension plans to be folded into the state pension system.

The Hawaii meeting is sponsored by the National Conference on Public Employee Retirement Systems. News about the Newton junketeers comes from an article in the Globe West section last Sunday. Reporter Connie Paige found that Needham also will send a representative, while Marlborough, Watertown, and Waltham are considering the trip.

The conventioneers will be talking about investments, of course, but the delegates from across the continental United States will travel so far from home largely for the waves, balmy breezes, and tourist attractions of Waikiki Beach, location of the Hilton Hawaiian Village, where meetings will be held. And the advice at these conferences can't be very good, at least for the Newton delegates, given that the city's annual pension return over the past five years averages 4.61 percent, far below the 7.05 percent earned by state pension investments.

A few of the state's 104 local retirement systems earn better returns than the state, but for whatever reason -- high overhead, poor advice, bad luck -- most earn less. And with so many individual investment strategies, public officials, contributors to the system, retirees, and other interested people have difficulty keeping track of their performance. It's time to consolidate the local plans under central management so that the entire public pension system is easy to monitor by the Legislature and the public.

Governor Deval Patrick, in his municipal aid package, is proposing a major first step toward that goal. He would fold 35 of the worst performing systems, including Newton, into the state system. Boston, the largest local system, just missed the cutoff for inclusion. But with an investment yield of only 4.96 percent the city could use the boost provided by state investment acumen. Boston ought to consider joining on its own.

Some people working for the retirement systems say the comparisons are unfair, since state law restricts local participation in such risky investments as hedge funds and real estate. If delegates from individual Massachusetts towns were allowed to take new risks, they would be surrounded in Waikiki by sharks in business suits. These are dangerous waters, and state investment managers are better swimmers.