financial operations

840 CMR 2.00 establishes the rules governing travel and travel-related expenditures by retirement board members and staff. All travel expenses must be related to the authorized purpose, cost-effective, and approved in advance by the board through a recorded vote in open session. Board members must submit itemized receipts for all expenses within 60 days, and reimbursement is limited to the person who actually incurred the expense. The regulation covers transportation, lodging, meals, and other incidental costs, and requires boards to seek government or business rates when making travel arrangements.

840 CMR 4.00 establishes the standard methods of accounting that all retirement boards must follow, ensuring uniform financial reporting across all Massachusetts public retirement systems. Boards must maintain PERAC-prescribed ledger accounts, enter transactions daily, run monthly trial balances and general ledgers, and submit monthly financial reports to PERAC. The regulation defines core accounting terms and requires boards to send annual statements by May 1 each year (with extensions available upon written request). Boards that fail to file timely reports may have their investment exemptions revoked after 14 days' written notice.

840 CMR 18.00 requires every retirement board to file a statement of investment objectives with PERAC and to periodically update it. Before designing an investment program, boards must consider their most recent actuarial valuation, consult with their investment consultant, and address questions about the system's growth stage, liability stream, demographic forecasts, and funding status. Asset allocation decisions must be made using a liability-sensitive approach that tailors the portfolio to the system's liability profile. The required statement of investment objectives (filed on Form 18) must be signed by each board member and include detailed information about fiduciaries, terms of employment, investment policies, and performance benchmarks.

840 CMR 21.00 establishes a list of investment types that retirement boards are categorically prohibited from making, regardless of whether the board has received an investment exemption under 840 CMR 19.00. The prohibited categories include purchases on margin, short sales, speculative futures contracts (with limited exceptions for forward currency contracts), certain options transactions, lettered or restricted stock, direct mortgage investments, most collateral loans, loans to employees or individuals, and direct purchase or lease of real estate. Limited exceptions exist for certain forward currency contracts against international portfolio holdings (up to 25% of non-dollar holdings) and for covered call options against domestic equity securities (up to 25% of the equity portfolio).

840 CMR 23.00 authorizes the actuary to amortize both realized and unrealized investment gains and losses over a five-year period (or another period prescribed by the Commissioner) when determining the retirement system's annual appropriation amounts. A realized gain or loss is defined as the profit or loss on the actual sale or maturity of an investment measured against its book value; an unrealized gain or loss is the difference between the current market value and the value included in system assets at the last previous valuation. This smoothing mechanism helps retirement boards avoid sharp year-to-year swings in required employer contributions caused by short-term market volatility.