Refunding the pension plans
A couple weeks ago I gave some history on the Town's pension plans and related Council actions. Yesterday I recapped some of the issues currently facing the pension plans. And now some thoughts on funding the plan's gaping deficit...
The Town is currently underfunded by more than $15 million.* And while the plan's assets could grow and the deficit could shrink... it could also go the other way... or could stay the same.
Assuming everything stays the same, then the Council will either need to:
1) fund the $15 million deficit; or
2) reduce the benefit**
Complete funding won't happen this year, but it may begin this year.
If you straight-lined a complete funding of the $15 million deficit over 30 years, the Town would need to include about $500,000 this year. That's about 0.2 mills... or maybe eight employees.*** That's eight employees who would not be employees. (The Town currently has about 215 FTEs.)
Straight-lining the refunding of the plan is pretty unlikely. But even so, a prudent approach may call for at least $100,000 in funding this year.
You can figure out the impact.
My gut feeling is if the market doesn't come back... employees will be hard-pressed to find five Council members who, year in and year out, responsibly fund the pension plan for the next 20 or 30 years. And this is exactly why I've been calling for a move from DB plans to DC plans for years... since before I got on the Council.
Later this week, I'll offer some thoughts on alternatives.
Tim White
* Unfortunately, I can't provide a current figure because the pension plan liability was last measured on June 30, 2008... and it is not scheduled to measured again until June 30, 2010. In the meantime, I'll ballpark the total current liability at more than $57,000,000 and the total current assets at $42,000,000.
** In my opinion, a promise is a promise - you keep it. You don't govern like the legislature that never looks beyond the next election.
*** Assume an ee has a $50,000 salary + $10,000 medical bene's ($7k single, $14k family) + 6% retirement bene's + misc.
2 comments:
Tim,
Who controls the pension funds? Where is the money directed into and who makes that decision? Was the deficit caused by poor investment strategy? Please be specific and not "in general," with your response.
Thanks,
MJR
MJR... with all due respect, you seem to be asking for facts, but I can only offer my opinion. Specifically, I think there have been some inappropriate investments. But I'm not a FA. I don't have a Series 7, a Series 63 or any others. I just know I'm not happy with the current consultant's performance.
In all seriousness, you should come to the next meeting and form your own opinions... or read the minutes, as Mike Ulicki did. As he may be able to attest... there are issues beyond investment strategies.
And there's just way too much for me to answer here.
As for who controls the funds... the Board sets the policy and the consultant makes the recommendations and investments. But truthfully, I'm not close enough to it yet to give you good answers.
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