Tuesday, January 06, 2009

Retirement Advisory Board 01/06

The Pension Board met tonight. As you may recall the Board hired a second set of eyes at the December meeting. The new consultant, Hooker & Holcombe, is tasked with backstopping the advice of the plan's primary consultant, Citi.

And since I haven't mentioned it yet, there were two main reasons for the Board hiring H&H:

1) the market is having huge problems - but almost everyone is experiencing this.

2) the primary consultant had been less-than-responsive for a while now... even before the Paulson Pandemonium this fall.

Anyway, the December meeting saw the hiring of H&H as a second set of eyes for the pension plan assets. And since a separate arm of H&H already measures the pension plan liability, the Board decided to ask H&H to also review the assets.

I think it was a good decision and credit goes not only to Chairman Denne's Board, but also to the TM and Finance Director. And the decision began to bear fruit tonight.

No, H&H didn't miraculously turn the pension around. But I have attended four Board meetings* so far and tonight's meeting was the first at which I felt comfortable. And most troubling to me has been that I'm a CPA who is professionally involved in this stuff - equities, fixed income, investments, trusts, pensions, etc. That's what I do. I know all the jargon. And I still had difficulty following some of the conversations. It was all very troubling. But I didn't know the backgrounds of the Board members, so at first I wasn't sure if it was a big deal. Nonetheless, town staff recognized there were some problems and helped facilitate some changes.

Tonight, H&H slowed down the conversation and (from my perspective) ensured Board members understood what was happening and brought the conversation back to where it should have been. Board member Mike Evans also asked a great question of the consultant... the type of question for which there is no answer. You just have to sit there silently, until you bring up an entirely new topic. Again, great question. Too bad it even needed to be asked.

Anyway... the unaudited numbers of the pension plan place it at $42.5 million as of December 31... down from around $60 million as of June 30. And while that's not too good, the Board was at least getting useful advice tonight.

One last thought... if this isn't fully funded, the Council is supposed to fund it as of June 30, 2010. And that would have a massive impact on our taxes. For instance, if you straight-lined it and decided to fully fund the (approximately) $17 million deficit over 30 years... you're looking at more than $500,000 being sunk in the pension plan this year.

Tim White

* they have regular meetings on a quarterly basis and have had two special meetings in the past month, including tonight


Anonymous said...

Shut the pool for a year, done deal.

Anonymous said...

Hi Tim,

I appreciate you showing interest in this and placing it on your blog.

This issue is going to become one big mess for the town and will end poorly for its taxpayers and most unfortunately for the benefactors of the pension fund.

I have read the meeting notes from the 10/23 and 12/10 meetings. These are my thoughts:

• If the Retirement Board does not understand the investments then they should not be invested in them, period. The Retirement Board should be reading the prospectuses.
• It is obvious that Charkatz from Citi is not doing a good job. So I do not see why the Board needs to pay H&H $25,000 to tell them this, but hey if that is what it takes then it is money well spent.
• It was stated that Board members have a Fiduciary responsibility and can be held liable; I would think about stepping down. Forget the liable part; I would not want a bunch of cops and firefighters pissed at me.
• Tim call your friend Peter Schiff and get him down there to talk to the Board members.

Lastly from the meeting notes: “Mr. Milone pointed out that, … …, the Town has bigger concern about funding the plans and meeting the budget.”

Best Regards,
Mike Ulicki

tim white said...

Mike... thanks for reading the minutes. And yeah... I've been downplaying this a bit as I've been trying to get my hands around it and get other Council members on the same page. There's not much point in me trying to do something if the Council majority is unaware and / or disagrees.

Anyway, it is a HUGE deal.

Frankly, I agree that the primary consultant should be terminated... I HATE the razzle dazzle... and that's why I've been making phone calls / emails outside of the regular meetings... trying to bring Council members up-to-speed and bouncing ideas around for a best course of action.

Anonymous said...


That is great. And please do not worry if they disagree; make them aware. Milone is down there and got Ryan involved and H&H is down there too. He understands what is happening, the chickens are coming home to roost. That means Hall is going to know it too. Now if Hall takes his lead from Milone then he is doing the needful for you.

Also can you please respond to the question by Evans that was asked that no one could answer? The suspense is killing me.

Lastly there is a point for you doing it; for the taxpayers who are yet to know that you are working in their best interest and to the people counting on that retirement money.

Best Regards,
Mike Ulicki

Anonymous said...

straight-lined it and decided to fully fund the (approximately) $17 million deficit - arent funds usually smoothed out regarding pensions and not "straightlined", to allow for fluctuations in the market(not to the current market of course), and the 17 million dollars, is that a deficit?currently that is a paper loss. How are each of the funds? underfunded? overfunded? Can you please shed some light on this...

tim white said...

please respond to the question by Evans that was asked that no one could answer?

haha... sorry for the suspense.

I can't quote, but I'll characterize...

Mike Evans says he was reading the Morningstar review of a particular fund. He says the review describes the fund as being the most aggressive bond fund available. He then asks "does a town pension plan want to be involved in the most agressive fund available?"

To which the consultant responded with some jibberish about how Morningstar isn't necessarily right about that... or how different things have different interpretations.

All hogwash.

Again though, I'm not quoting anyone... that's just what I took away from Tuesday's conversation.

As I said... I'd terminate the contract immediately... but in this case, I don't get a vote.

tim white said...

And FWIW, Morningstar is probably the most widely used ratings source in the bond market... as far as I know.

tim white said...

the 17 million dollars, is that a deficit?currently that is a paper loss. How are each of the funds? underfunded? overfunded? Can you please shed some light on this...

For a lot of details, please search old posts on the blog... I tend to use this as a diary... posting quickly without always referencing things... the upside is it saves me time... the downside is sometimes only regulars will follow. Regardless...

Pension Plan assets as of Dec 31, 2008 - $43million

Pension Plan liabilities as of June 30, 2008 - approx $57million

assets are measured monthly... liabilities are measured every two years on June 30.

Anonymous said...

Unless pension fund benefits come in line with what the pension assets can really support, Cheshire will head toward banckruptcy.

That's the real world. Maybe bankruptcy is the way to go.

tim white said...

Since we didn't ask Bush for a bailout, maybe we could ask Obama for a stimulus package to re-up the pension assets?

Anonymous said...


I called to Patti Ryan, Finance Director. She is going to send me the pension documents; have to understand what we are dealing with.

The discussion needs to head towards the comments made within this post; assets are not going to support benefits.

One thing Ms. Ryan mentioned (provided I understood correctly) is that the Town Council sets estimated rate the pension returns. The higher the rate the less that needs to be funded by the town and vice versa; with an estimated rate of 0% means the town pays as they go. The rate is for a 30 year time frame.

If this is correct I am curious how the Town Council will be informed to make this decision.


Mike Ulicki