investments

PERAC has issued an updated Tobacco Company List effective April 2026, replacing all prior versions. Under Chapter 119 of the Acts of 1997, retirement systems may not make new investments in companies deriving more than 15% of revenue from tobacco sales. Boards must forward the list to investment advisors (noting it is for Massachusetts public fund clients only) and must divest any non-compliant holdings prudently after consulting with PERAC. PERAC audits portfolios for compliance. Compared to the January 2026 list, the April 2026 list removes Starfleet Innotec Inc from U.S. companies.

PERAC has issued an updated Tobacco Company List dated October 2025, which replaces all previously distributed lists and is effective upon receipt. Under Chapter 119 of the Acts of 1997, retirement systems are prohibited from making new investments in stocks, securities, or other obligations of any company that derives more than 15% of its revenue from tobacco products. Boards must forward the list to their investment advisors and note that the list is strictly for Massachusetts public fund clients only. PERAC will review portfolios for compliance during audits and any non-compliant holdings must be divested in a prudent manner after consulting with PERAC.

PERAC has issued the updated Tobacco Company List effective January 2026, replacing all prior versions. Under Chapter 119 of the Acts of 1997, retirement systems are prohibited from making new investments in companies that derive more than 15% of revenue from tobacco sales. Boards must forward this list to their investment advisors immediately, noting it is for Massachusetts public fund clients only. PERAC will audit portfolios for compliance; non-compliant holdings must be divested prudently after consulting with PERAC.

840 CMR 16.00 governs the employment of qualified investment managers by retirement boards, setting out when boards may or must use external investment managers and the requirements for doing so. Any board that has received an investment exemption pursuant to 840 CMR 19.00 must employ a qualified investment manager to manage the system's funds; no unqualified person may provide investment advice to an exempt board. Investment management must be by written contract that designates the manager as a fiduciary, specifies investment objectives and brokerage practices, and does not contain indemnification provisions. All qualified investment managers must annually submit a current Form ADV Part II to both the board and PERAC.

840 CMR 17.00 establishes ethical and conduct standards for both retirement board fiduciaries and qualified investment managers. All board members and retirement system staff must be bonded for at least 10% of the fund or $500,000 (whichever is less, up to the bond maximum). Fiduciaries must subscribe to a code of ethics requiring integrity, professional conduct, competence, and independent professional judgment. They must comply with M.G.L. c. 268A (the conflict of interest law), act in accordance with the system's documents and instruments, and are prohibited from self-dealing, acting adversely to the system, or receiving personal compensation from parties transacting system business. Investment managers face similar conduct standards and additional disclosure requirements.

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 19.00 establishes the process by which retirement boards may obtain exemptions from the investment restrictions of M.G.L. c. 32, § 23(2)(b), allowing boards to invest in a broader range of assets through qualified investment managers. Boards that received exemptions before the effective date of 840 CMR 19.00 retain them for those asset classes. For new exemptions, boards must follow a competitive selection process with specified criteria for choosing investment managers across equity, fixed income, cash, real estate, and other asset classes. PERAC may revoke an exemption if a board fails to maintain required standards, and boards that lose their exemptions revert to the legal list investment restrictions of M.G.L. c. 32, § 23.

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.

840 CMR 26.00 governs the retention and qualification of investment consultants by retirement boards. Any board employing a consultant must apply to PERAC for approval using Form 25 before executing any new contract or extension. Consultants must be registered investment advisers under the Investment Advisers Act of 1940. The selection process requires boards to establish written criteria, obtain competitive proposals, and execute a written contract specifying services, fees (which must be fixed-dollar, not percentage-of-assets), and termination provisions—with no indemnification clauses. Consultants must disclose all compensation arrangements, conflicts of interest, and third-party referral fees to both the board and PERAC.

840 CMR 27.00 establishes PERAC's authority to issue protective orders against retirement boards whose investment or recordkeeping practices are not being conducted with reasonable care, skill, prudence, or diligence. PERAC may issue an immediate temporary order upon reasonable belief of improper practices, which remains in effect pending a full investigation and hearing. An investigative hearing may be convened within 60 days of a temporary order, with at least 30 days' notice required in other cases. After findings of fact, PERAC may issue a permanent order directing the board to take or cease specific actions; violations of such orders are punishable under M.G.L. c. 32, § 24.