Public Employee Retirement Administration Commission Overview of Audited Entity

This section describes the makeup and responsibilities of the Public Employee Retirement Administration Commission.

Overview

The Public Employee Retirement Administration Commission (PERAC) was established by Chapter 306 of the Acts of 1996 to oversee and regulate the 104 public retirement boards in the Commonwealth of Massachusetts. According to PERAC’s website, its “mission is to provide regulatory oversight and guidance for the effective, equitable, and ethical operation of the Commonwealth of Massachusetts’ public pension systems.” PERAC had 54 employees during the audit period. Its nine units (see Appendix) schedule medical examinations³ for accidental and ordinary disability retirement applications; certify benefit calculations; perform and review retirement board actuarial valuations;⁴ and enforce statutory provisions related to procurements, investments, and disclosures. In addition, PERAC reviews the financials of all public retirement board records at least once every three years. PERAC also provides training, legal, and technical assistance to retirement boards.

PERAC promulgated the Standard Rules for Disability Retirement (Section 10 of Title 840 of the Code of Massachusetts Regulations), governing disability retirement procedures that retirement boards must follow. As part of its oversight under these requirements, PERAC schedules medical examinations and determines whether a member qualifies for disability retirement benefits.

In accordance with Section 49 of Chapter 7 of the General Laws, PERAC has seven unpaid commissioners. The Governor appoints three of these commissioners⁵ and the State Auditor⁶ appoints another three commissioners.⁷ These six commissioners then choose a seventh commissioner, the chair, who oversees PERAC’s administrative functions.

Application and Determination Process

Upon receiving an application for disability retirement from any member of a public retirement board in Massachusetts, the retirement board requests that PERAC schedule a medical examination of the member by a medical panel made up of three physicians appointed by PERAC, based on the regional location of the member. PERAC appoints three physicians to examine the member whose retirement is under consideration. The physicians of this medical panel must determine, either jointly or separately, whether they find that the member applying for disability retirement is unable to perform the essential duties of their job and whether the member’s disability is likely to be permanent. The physicians who conduct the medical examination(s) must respond to all questions on the Medical Panel Certificate and complete a narrative report, a Certification of Medical Panel Finding, and either an Accidental Disability Certificate or Accidental Disability Presumption Certificate (if appropriate). These physicians must then submit all these documents to PERAC within 60 days of the examination(s). PERAC must forward the medical panel’s report to the retirement board within five days of receipt. The retirement board then has the option to request more information or clarification from the medical panel. Within 30 days of receiving the report, the retirement board notifies the member of the medical panel’s findings and provides copies of all the documents completed by the medical panel.

If the medical panel concludes that the member applying for disability retirement is incapable of performing their essential job duties, the retirement board then determines whether to approve or deny the application for disability retirement.

If the application is approved, the retirement board sends a Disability Transmittal Request to PERAC. PERAC’s Legal Unit must either approve or remand the Disability Transmittal Request, then return it to the retirement board within 30 days of receipt; otherwise, the request is automatically considered approved.

• If PERAC’s Legal Unit approves the Disability Transmittal Request, PERAC’s retirement management system automatically generates a Disability Transmittal Letter, which PERAC sends to the retirement board, alerting the board to the request’s approval and listing the documents needed to calculate the disability retirement allowance that the member should receive.
• If PERAC’s Legal Unit remands an application back to the retirement board, the retirement board may attempt to rectify any issues and resubmit the application, or the retirement board may deny the application and provide the member with a notice of their right to appeal.

Members’ Disability Retirement Allowance Calculations and Approvals

Once the retirement board receives notification from PERAC that the member has been approved for disability retirement, the retirement board performs all calculations to determine the member’s monthly disability retirement allowance. Once the retirement board calculates the member’s monthly disability retirement allowance, it sends the Disability Transmittal Letter, calculation worksheet, and other retirement documents (which vary by type of disability) to PERAC for approval. Pursuant to Section 21(3) of Chapter 32 of the General Laws, PERAC must approve disability retirement allowances calculated by retirement boards.⁸

To ensure that the disability retirement allowance calculated by the retirement board is accurate, PERAC reviews the documents provided and performs its own calculations. If the disability retirement allowance amounts match, PERAC mails an approval letter to the member applying for disability retirement and forwards the approval letter to the retirement board. If the disability retirement allowance amounts do not match, PERAC reviews the retirement documents to determine why there is a discrepancy and resolves it. PERAC does not approve disability retirement allowance calculations until any discrepancies between PERAC’s and the retirement board’s calculations are resolved. When the retirement board receives the approval letter from PERAC, it begins sending payments to the member.

Annual Statements of Earned Income

Section 91A of Chapter 32 of the General Laws requires every person receiving a disability retirement allowance to submit an Annual Statement of Earned Income, certifying the full amount of their earned income during the preceding year, along with all pertinent Forms W-2, Forms 1099, and other tax forms requested by PERAC, on or before April 15 of every year.

According to PERAC management, once the retired member submits the Annual Statement of Earned Income and supporting financial records, PERAC’s Fraud Unit reviews the records (e.g., Forms W-2 and Forms 1099) to determine whether the member exceeded their allowable earnings. For members who have reported earnings in an amount that may result in an adjustment to their disability retirement allowance, PERAC sends a system‑generated task, through their retirement management system, to the member’s retirement board, requesting the figures needed to determine the refund amount, if any. Once the retirement board inputs the figures directly into the retirement management system, PERAC can immediately do the calculation. If the member did not exceed their allowable earnings, no further action is necessary. If the member’s earnings were over $15,000 more than what their pay would be in the position held when they retired, had they not retired, the member must refund the amount in excess of their disability retirement allowance to PERAC. If PERAC determines that the member is an excess earner, PERAC mails a letter, called a 91A Excess, to the member, explaining that if they do not refund the excess amount, their disability retirement allowance will be withheld until the retirement board recovers the amount owed.

If a member who receives a disability retirement allowance does not submit the Annual Statement of Earned Income and the supporting financial records to PERAC and does not show good cause for not submitting them, the member’s retirement board terminates their right to a disability retirement allowance for noncompliance. According to Section 91A of Chapter 32 of the General Laws, “Prior to any termination or reduction of benefits . . . the member shall be given a written notice [of the decision] and an opportunity to be heard by the retirement board.”

3.    Retirement boards request medical examinations on behalf of members, while PERAC schedules the medical examinations.

4.    PERAC’s website defines actuarial valuation as “a ‘snapshot’ picture of how well the plan is funded at that time. The valuation compares the plan’s liabilities (current and future payments to be made upon retirement, death, disability, or termination of employment) with the plan’s assets (both employer and employee contributions credited with investment earnings).”

5.    The three members appointed by the Governor are the Governor or their designee, a representative of a public safety union, and an expert in the investment of funds.

6.    Generally accepted government auditing standards require that organizations be free from organizational impairments to independence with respect to the entities they audit. To this end, we are disclosing that under Section 49 of Chapter 7 of the General Laws, PERAC’s board consists of seven members, including the State Auditor or their designee. This disclosure is made for informational purposes only, and this circumstance did not interfere with our ability to perform our audit work and report its results impartially.

7.    The three members appointed by the State Auditor are the State Auditor or their designee, the president of the Massachusetts American Federation of Labor and Congress of Industrial Organizations or their designee, and a representative of the Massachusetts Municipal Association.

8.    The Massachusetts State Employees’ Retirement System and the Mass Teachers Retirement Board are not required to submit calculations to PERAC for approval. Pursuant to Section 21(3)(a) of Chapter 32 of the General Laws, PERAC reviewed and approved the automated systems used to calculate disability retirement allowances at each of these retirement boards; therefore, disability retirement allowance calculations by those systems are considered to be approved by PERAC.

Date published:	June 22, 2023