Pension funds reflect market's mixed fortunes

Last year, the Lexington pension fund’s invested assets lost nearly 33 percent of their value, while Marlborough’s retirement system, with a more conservative investment strategy, saw its assets fall by much less, just 20.53 percent, according to figures provided by the Public Employee Retirement Administration Commission, or PERAC, which oversees public pension funds across Massachusetts.

For many area communities, like individual investors, the downturn came after several years of high yields. But a review of the past decade’s figures found that Natick’s returns were down slightly, and Arlington’s gains were less than most area funds.

In some cases, losses in investments have left taxpayers called upon to contribute more into municipal retirement systems than anticipated, even as their communities struggle to cover employee salaries and taxpayer services.

Still, Robert Dennis, PERAC’s investment director, stressed that the lower returns will have no consequences for retired employees looking for their pensions.

He also said, however, that the stock market’s declines do mean cities and towns “have to be more aggressive in coming years’’ in trying to bolster their funds.

The public retirement systems collect contributions from school, municipal, county, and state workers and the public entities that employ them, and then invest the funds to build up a reserve to cover pension payments once the workers retire. Over the previous 10 years, pension funds did well in their investments, but the streak ended with the stock market’s nose dive last year.

However, some local pension funds did not enjoy high profits even during the bull market. The Natick Retirement Board’s portfolio fell by 0.32 percent over the past decade, while the Arlington Retirement Board’s investments gained just 1.27 percent, according to the PERAC report.

By contrast, over the same period the retirement boards in Belmont and Needham had returns topping 4 percent, while the returns for Concord, Framingham, Marlborough, Maynard, Newton, Shrewsbury, Watertown, and Wellesley were above 3 percent. The state’s average uptick was 4.25 percent, the report says.

Dennis said one of the reasons for Natick’s poor performance was its heavy investment in a venture capital company, the First America Asia Fund, that ran into steep losses and has been sued by a number of its institutional clients. He said the board pulled out of the fund, but still has a lot of catching up to do. “Natick is facing a lot of challenges going forward,’’ he said.

Michael Sacco, the Natick Retirement Board’s lawyer, said it has also changed its investment consultant and manager. “We’re hopeful going forward we’ll see some positive results with the new team in place,’’ he said.

Dennis said Arlington “threw in the towel’’ about a year ago, after its one-, five-, and 10-year returns lagged behind the state’s pooled retirement system, the Pension Reserves Investment Trust Fund, and decided to join the number of area school and governmental retirement programs that have turned over their assets to the PRIT program.

The Arlington board then saw PRIT’s returns slump, after the collapse of its once high-return investments in real estate, timber, hedge funds, and other ventures. Still, the panel will keep its funds in PRIT, said Richard S. Greco, Arlington’s retirement administrator.

“You have to stick with it and it will bounce back,’’ Greco said. “It’s a marathon, not a sprint.’’

The PERAC report also shows that, as of Jan. 1, 2008, Belmont had only 55.3 percent of the expected assets needed to pay off its obligations - what’s called the funded ratio. By contrast, Lexington and Wellesley had funded ratios of 100.5 percent and 106.1 percent, respectively.

Rosario Sacco, the Belmont Retirement Board chairman (and father of Michael Sacco), said his panel reduced the town’s payment into the fund by $100,000 in 2004 and 2005 to help ease a municipal budget crunch, which lowered the reserve.

With last year’s losses, Lexington and Wellesley are below the funded ratios they had on Jan. 1, 2008, their retirement board directors said, although they could not gauge the precise drop until their funds are audited.

Robert Cunha, chairman of the Lexington Retirement Board and president of the local firefighters union, said his panel put money into equities last year, a higher-risk investment that was responsible for the fund’s dramatic loss. However, Cunha said, the board will not ask for money from the town to make up the difference. “Hopefully, we’ll ride out the storm,’’ he said.

David Kornwitz, the Wellesley Retirement Board’s chairman, said its investment portfolio, with about $144 million in assets before the stock market tumble, fell by about $40 million, or about 30 percent, last year.

Kornwitz said that not all of the drop was due to investment losses, with roughly $7.5 million paid out to retirees.

Over the first five months of this year, he said, the fund has crept back to a total value of about $100 million.

Kornwitz said the town originally got its pension fund into healthy shape with generous municipal contributions in the 1970s and 1980s.

Now, after the economic downturn, taxpayers are going to have to fork over again, Kornwitz said. Wellesley’s budget for the fiscal year starting July 1 calls for putting $1 million into the pension fund, to be followed by payments of $2 million to $3 million in the 2011 fiscal year and $3 million to $5 million in 2012. The fund should then be fully covered, he said: “We’re trying to be ahead of the curve again.’’

Municipal pension funds generally mirrored the performance of PRIT. However, with a 4.66 percent return, PRIT did much better on its investments over the past 10 years than most local funds. But it fared worse than some funds in the short-term.

Last year, for example, PRIT lost 29.5 percent on investments, about 9 percentage points more than Marlborough’s fund.

Christopher M. Sandini Sr., a member of the Marlborough Retirement Board and the town accountant in neighboring Hudson, said the local panel has always been conservative in its investment strategy, and it paid off last year.

Connie Paige can be reached at connie_paige@yahoo.com.