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Audit of the Massachusetts Teachers’ Retirement System Objectives, Scope, and Methodology

An overview of the purpose and process of auditing the Massachusetts Teachers’ Retirement System.

Table of Contents

Overview

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 certain activities of the Massachusetts Teachers’ Retirement System (MTRS) for the period July 1, 2017 through June 30, 2019.

We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Below is a list of our audit objectives, indicating each question we intended our audit to answer; the conclusion we reached regarding each objective; and, if applicable, where each objective is discussed in the audit findings.

Objective

Conclusion

  1. Does MTRS ensure that members receive their first pension payments within the timeframe established by Section 13(1)(b) of Chapter 32 of the General Laws?

No; see Finding 1

  1. Does MTRS ensure that adjustments made to monthly benefit payments, as a result of changes to wage, service time, or annuity deposit data received after the initial payment of benefits, are completed accurately in accordance with Section 5(2) of Chapter 32 of the General Laws?

Yes

  1. Does MTRS identify deceased retirees and beneficiaries promptly and ensure that benefit payments are subsequently adjusted or terminated accurately in accordance with Section 12(2) of Chapter 32 of the General Laws?

Yes

 

In addition, Finding 2 discusses monthly benefit payments that we found had been made to a member whose account contained an invalid Social Security number (SSN).

To achieve our audit objectives, we gained an understanding of MTRS’s internal control environment related to the objectives by reviewing agency policies and procedures, as well as conducting inquiries with MTRS’s staff and management. We reviewed and tested the operating effectiveness of internal controls related to the processing of new retirees’ first pension payments, adjustments to monthly benefit payments, and retiree and beneficiary deaths during the audit period.

To obtain sufficient, appropriate audit evidence to address our audit objectives, we conducted further audit testing as follows.

To determine whether MTRS processed first pension payments within the required timeframe, we performed the following procedures:

  • MTRS gave us a list of all 4,907 new retirements with effective dates during our audit period from its benefit administration system, MyTRS. For each new retiree, we calculated the amount of time between the effective date of retirement and the date of the first pension payment.
  • We split the population of new retirements during our audit period into two categories based on the number of days between the effective date of retirement and the date of the first pension payment.

Category

Days to Process First Payment

Population

Percentage of Total

Compliant*

62 days or less

3,689

75.2%

Noncompliant

More than 62 days

1,218

24.8%

Total

 

4,907

100%

*     For audit testing purposes, we defined “compliant” as “processed within 62 days.” By statute, the timeframe for compliance can range from 28 to 62 days depending on the day of the month a retirement is effective, as outlined in the “Overview of Audited Entity. section of this report under “Retirement Application Process.”

  • We selected a statistical, random sample for testing, with a 95% confidence level, a 0% expected error rate, and a 10% tolerable error rate, of 30 of the 3,689 “compliant” retirements. We reviewed retirement applications for completeness and the content of first pay letters to determine whether there was any evidence of common attributes, data trends, or potential best practices that may have contributed to the favorable processing times.
  • We selected a statistical, random sample for testing, with a 95% confidence level, a 0% expected error rate, and a 10% tolerable error rate, of 30 of the 1,218 “noncompliant” retirements. We evaluated the retirement application processing timeline for the selected cases to determine whether there were any underlying reasons for the delays in processing first payments. We reviewed supporting documentation (such as retirement applications, application checklists, application receipt acknowledgment letters, salary request and release forms, benefit request sheets, data and annuity sheets, first pay letters, and MyTRS workflow reports) to identify any similar circumstances, common causes for delays, or other trends in the data that might have contributed to the delays.

To determine whether MTRS accurately processed adjustments made to monthly benefit payments, we performed the following procedures.

  • MTRS gave us a list from MyTRS of all 1,068 retirements during the audit period that required adjustment after the issuance of the first benefit payment. We segmented the population based on the impact (increase, net zero, or decrease) and dollar value of the adjustments, as follows.

Impact of Adjustments

Dollar Range of Adjustments

Population

Percentage of Total

Increase in Benefit

$0.04–$2,451.78

552

51.7%

Net Zero Change in Benefit*

$0.00

502

47.0%

Decrease in Benefit

$4.58–$1,531.32

14

1.3%

Total

 

1,068

100%

*     Net zero adjustments are adjustments where the change in the monthly pension amount is completely offset by an equal and opposite adjustment to the monthly annuity amount. The net impact of such changes is $0.

 

Size of Adjustments

Dollar Range of Adjustments

Population

Percentage of Total

Small

$0.01–$9.99

482

45.1%

Medium

$10.00–$99.99

364

34.1%

Large

$100.00 or more

222

20.8%

Total

 

1,068

100%

 

  • We selected a statistical, random sample for testing, with a 95% confidence level, a 0% expected error rate, and a 10% tolerable error rate, of 30 of the 1,068 adjustments. We also randomly selected a nonstatistical sample of 3 of the 14 adjustments with a decrease in monthly benefit payments for testing. Finally, we randomly selected a nonstatistical sample of 20 of the 222 adjustments with impacts of $100 or more for testing. For each sample, we determined the reasons for the adjustments, calculated the lengths of time from dates of first pay to dates of adjustment, and verified the accuracy of the revised monthly benefit payments.

To determine whether MTRS promptly identified deceased retirees and beneficiaries and accurately adjusted or terminated benefit payments, we performed the following procedures:

  • We obtained a system-generated list of all 3,105 retirees and Option C beneficiaries whose recorded dates of death occurred during our audit period. We selected a statistical, random sample, with a 95% confidence level, a 0% expected error rate, and a 10% tolerable error rate, of 30 deceased benefit recipients and reviewed supporting documentation (such as retirement applications, death certificates, death notices, obituaries, and correspondence) to determine whether death certificates were on file; dates of death were promptly and accurately recorded in MyTRS; and appropriate actions were taken, including accurate and timely adjustments to benefit payments when necessary.
  • From the population of 3,105 recorded deaths, we identified 7 that were not recorded in MyTRS until six months (180 days) or more after the dates of death. We tested all 7 deaths to determine whether any underlying reasons or irregularities existed that caused the delays.
  • MTRS gave us a list of 3,192 possible deaths6 of MTRS retirees and Option C beneficiaries received during our audit period from its third-party vendor. We selected a statistical, random sample of 30 possible deaths, with a 95% confidence level, a 0% expected error rate, and a 10% tolerable error rate, and reviewed supporting documentation (such as payee lists provided to the third-party vendor, retirement applications, death certificates, death notices, obituaries, and correspondence) to determine whether the deaths were of MTRS members or beneficiaries; whether death certificates were on file; whether dates of death were promptly and accurately recorded in MyTRS; and whether appropriate actions were taken, including accurate and timely adjustments to benefit payments when necessary.

We used a combination of nonstatistical and statistical sampling methods for our audit objectives and did not project the sample results to any of the population.

Data Reliability

We assessed the reliability of the data obtained from MyTRS by interviewing agency officials who were knowledgeable about the data and testing the data for duplicate records and dates outside our audit period. We also verified the number of records in each data population (retirements, adjustments, and deaths) by comparing the total number of records to those in other data sources, such as monthly summary reports and pension warrants (lists of monthly benefit payments). In addition, we traced samples of records from each data population to and from original source documents, such as retirement applications, system-generated workflows, death certificates, death notices, and pension warrants, for completeness and accuracy. Further, we tested one automated application control related to the creation of workflows for certain adjustment activities in MyTRS. We also tested certain general information system controls over MyTRS. This included testing of system access controls related to the initial granting of access privileges to new hires and the revocation of access privileges for terminated employees.

As part of our assessment of the reliability of data pertaining to deceased retirees and beneficiaries (Objective 3), we found that monthly benefit payments were made to a member whose account contained an invalid SSN; as previously mentioned, this is discussed in Finding 2.

We determined that the information obtained from MyTRS for our audit period was sufficiently reliable for our audit work.

6.     MTRS periodically provides a third-party vendor with a copy of its entire retiree payee file, including designated joint survivors, to identify member and beneficiary deaths. The vendor cross-matches the information in this file with its death data to determine whether any MTRS benefit recipients or designated beneficiaries have died. The vendor’s match produces a file of deceased individuals whose names and Social Security numbers closely match those of individuals in MTRS’s retiree payee file. MTRS conducts additional research to determine whether the decedents are MTRS payees.

Date published: October 14, 2021
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