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Finance to Consider Plan for 100 Percent Pension Funding

Selectmen recommended a plan to fully fund the town's pension accounts in 15 years, starting with this year.

The Brookfield Board of Selectmen (BOS) voted unanimously Tuesday night to recommend that the Board of Finance (BOF) implement a plan to move the town’s pension account toward 100 percent funding within the next 15 years.

In order to do this, the annual contribution to the fund (including the current 2012-13 fiscal year) would have to increase by around $800,000 to between $1.7 and $1.8 million, however the Retirement Benefits Advisory Committee (RBAC) has suggested using the final pending payment on the settlement of an insurance claim and other surplus in the general fund balance to subsidize the increase over three years and blunt the immediate shock to the taxpayer.

The pension fund is currently under-funded by approximately 15-20 percent, or about $8 million, when the future obligation to current town employees is taken into account. Assuming investment earnings, contribution levels and agreements with employee bargaining units remain constant the increased annual contributions laid out in the plan are projected to have the total liability funded within 10 years.

Those would be wild assumptions, however, Selectman Howard Lasser explained Tuesday, as employee contracts are sure to change, the elected officials who manage the fund will change and “over the next 15 years, who knows what’s going to happen in the market.”

If the market is strong over the next 15 years and investment earnings are high, the gap will close faster or the sitting administration can opt to make lower annual contributions. In the inverse, if the market were weak or worse, the timeline would have to be extended unless the contributions were increased further.

Lasser said that he was confident the RBAC’s projected investment earnings were conservative at 6.5 percent, compared with 8.5 percent used by surrounding towns.

While the pension obligations are a very real liability, Lasser also pointed out that the fund as a whole is in good health and could go some 30 years without additional funding before it would be depleted. 

Making the Payments

In the proposal put together by the RBAC, that gap in funding for the first three contributions would be subsidized at least partially through the general fund balance, which is expected to soon include income from the pending settlement with Legion Insurance Company in Liquidation, which will be at least as much as the first payment of $892,500.

According to First Selectman Bill Davidson, the BOS agreed to a settlement offer with Legion in an executive session on August 24, however there is a 10-business-day waiting period before the deal is signed. Davidson said that the exact figure of the settlement could not be made public until that time.

Using the settlement payment in this way would allow the town to “approach over a three-year period toward building our operating budget to this number,” $1.7 million, Davidson explained, “And to do so without a huge effect on the taxpayers.”

This method of using one-time payments to soften the immediate tax blow was through three years of diminishing transfers ($400,000 in 2011-12, $300,000 in the current fiscal year and $200,000 for the 2013-14 fiscal year), a portion of which went toward increasing the pension contribution.

Finance Board Chairman Jerry Friedrich met with Davidson on Tuesday to discuss some reservations about making this decision before the November elections, when the stock and bond markets may adjust to election results. By waiting, the town might be able to work off of better projections

Davidson, however, urged Friedrich and the BOF to implement the recommendation sooner than later, as it will be important begin with an increased payment to the fund this fiscal year to get on schedule; neglecting this year will only deepen the shortfall.

Showing measurable progress toward 100 percent funding will be important over the next year, Davidson said, as the town prepares to transfer $10 million in short term bonds into long term bonds.

“If we don’t do this, we would stand a reasonable chance of having our bond rating reduced” , he said, which would result in higher interest payments on that debt.

"That's one of my biggest concerns," Selectman George Walker agreed, "This bond rating and how that could impact us."

The selectmen moved unanimously to recommend that payments be increased over the next three years, supported by the general fund, including an additional contribution of $850,000 in the 2012-13 budget.

The BOF will discuss the proposal at their next regular meeting on September 12.

Rob Gianazza September 05, 2012 at 03:11 PM
No one is arguing that we shouldn't appropriately fund our pension debt. My question is why the rush? We are still experiencing difficult economic times. In a time when we should be focusing on generating economic development to improve our ability to increase our commercial tax base, it appears our Town leaders want to take what in essence is a windfall and increase the future tax burden on citizens. Taking a more conservative approach, wouldn't the settlement award better service the community by either buying down our current debt, or investing it in Four Corners infrastructure development?
John Mainhart September 05, 2012 at 03:50 PM
The only way this could make any sense is if you think Brookfield works in a vacuum and what is occurring nationaly and internationally has no affect on what we do. Since I believe we have very serious economic probles nationally and internationally that will definitely cause alot of us to have less I urge the selectmen not to do this.
Longtime Brookfield resident September 05, 2012 at 06:13 PM
What is our total liability look like over next 15 years - What level of funding do we currently have in our accounts ? What is the need as Rob points out to make such a large contribution this year ? Is there any advantages to making a large contribution this year that makes good solid fiscal sense? I 100% support funding this as it is an obligation but we need to be smart about it and plan accordingly- Basing this on financial markets does not really make GOOD sense to me as if we all knew what the market would produce we would all be retired by now
Steven DeVaux September 06, 2012 at 12:06 AM
Close the pension plan and buy annuities for the current employees and start a 403b plan with matching contributions up to 5%. It makes it portable for the employee, limits the liability of the town and stabilizes real estate taxes. Remember, the state will be coming after the towns for the teacher pension contribution in two years.
H. Ferguson September 06, 2012 at 01:02 PM
"employee contracts are sure to change". That's true enough and a big wild card, depending on how the retirement plan is negotiated. How generous will the BOS be with spending taxpayer's money on these benefits? How about the union employees contributing more to their retirement beneifts? Many towns are going bankrupt in the U.S. over union benefit contracts. Brookfield needs to act responsibly.
Longtime Brookfield resident September 06, 2012 at 01:28 PM
Does anyone know how many employees are covered by this pension plan? Does anyone know the % of salary payout ? is this 80% of current pay etc... Are the ones voting on this the ones covered by this plan
Ken September 06, 2012 at 02:07 PM
It is very rare that you actually close down a pension plan. That is becuase it requires an immediate payout of the actuarily determined FULL liability at the date of closure. Having to payout 100% of your liability in one shot to remove this liability from future balance sheets is usually not a feasible cash flow option for an employer. What most often happens is the DB plan is frozen and replaced with a DC plan. The employees already vested in the pension get their pre existing frozen benefit level at retirement but need to join the deferred contribution plan once the pension is frozen if they want anything more than the frozen pension benefit in retirement. The big difference In the case of an employer with unions and a non union employer is that a change from DB to DC plan would have to be negotiated as part of future contracts.
michael delvalle October 02, 2012 at 08:47 PM
At my job, non- union, my employee health contributions has increased approx. 15% a year for the last 4 years. Increased co-pay and deductible .[Thanks to the affordable care act.] I have had no pay increase in 10 years. My 401k is just now at the level it was before 2008. At 53 I'm too old to change jobs. I am reviewed on my performance on a weekly basis. If I need more money for my retirement , I increase my % of contribution out of my own pocket, why can't the town's employees ?
Steven DeVaux October 03, 2012 at 01:00 AM
'cause Davidson and Lasser don't want them to.

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