Town pension in 'strong shape'; funding of other post-employment benefits 'needs some work'
Published Nov. 21, 2011
By Matt Sheley/Daily News staff
Before the town of Middletown began to work on its annual budget for this fiscal year, it already was $8.2 million in the hole because of required payments for pensions and other post-employment benefits.
Overall, the town projects a total of more than $77 million in pension costs for current and retired public employees. The town has set aside more than $57 million, leaving close to $19.7 million unfunded, or about 25 percent of the total, according to information supplied to The Daily News. Plans that are less than 60 percent funded are considered "at risk" by the state.
The Town Council put close to $3.5 million in the current budget toward the pension fund - a payment that's doubled in 10 years from $1.7 million in fiscal 2002.
Those figures do not include the pension benefits owed to teachers. The Middletown School Department has been unable to provide figures for its total pension obligation or unfunded liability since The Daily News began requesting that information in mid-August. According to state reports, the Middletown School Department put aside $2.6 million in its budget for fiscal 2012 for pension obligations. That figure has increased $1.6 million since fiscal 2002.
As for the costs of other post-employment benefits, or OPEB - mostly health-care coverage for town and school retirees - the town and schools are projecting a total cost of $32.4 million, nearly $29.9 million of which, or about 92 percent, has not been funded. To step up funding, the council put more than $1.5 million toward OPEB in fiscal 2012, with the schools allocating close to $576,000.
The pension and OPEB payments accounted for nearly $8.2 million in the town's overall $63.5 million budget.
"One of the first things I did when I was elected was check into the situation with the OPEB and pension requirements," said Town Council President Arthur S. Weber Jr. "From everything I heard, it seemed like we were on top of the situation.
"We have been addressing it, but it's one of those things that never goes away," Weber said. "We're in pretty strong shape on the pension side, but the OPEB definitely needs some work ... everything we do today is one less thing we need to deal with tomorrow."
Representatives of Middletown's municipal employees and teachers unions agree, but maintain changes in funding - such as approved on the state level - should not come on the backs of employees, who were promised certain benefits when they were hired.
Town enters trust
Middletown was one of the first communities in the state to start setting aside money for OPEB, under the leadership of then-Town Council Vice President Charles J. Vaillancourt and former finance director Shawn J. Brown, who now is the town administrator.
Under new federal accounting standards that came into effect in the mid-2000s, communities around the country were required to disclose and fund more of their OPEB liabilities. Up to that point, municipalities mainly relied on a "pay-as-you-go" approach, covering the cost of benefits for retirees through the contributions of those who still were working and paying into the system.
Middletown set aside close to $1.9 million for OPEB in fiscal 2010, nearly $1.8 million in fiscal 2011 and more than $2 million in fiscal 2012.
To help address its OPEB liabilities, the Town Council voted unanimously in mid-June to enter into a trust agreement. As part of that arrangement, the town receives advice from a trustee, investment manager and advisory board, with the goal of getting the OPEB debts fully funded by 2036. Stated goals of the investment policy guiding the process include diversifying investments as much as possible to control overall risk and liquidity as well as structuring the asset portfolio in a way that increases purchasing power in the future.
Until the town entered into that trust, Brown said OPEB funds by law only could be put into low-return investments such as money markets.
"It's one of those things we're aware of, but when the market is performing like it has been recently, there's only so much you can do," Finance Director Lynne S. Dible said. "We started in 2005, well before the financial issues started cropping up in '08, '09. It's the subject of ongoing financial management."
The impact of the unsettled financial markets wreaked havoc on the other side of the benefit table.
In the budget for fiscal 2011, the council voted to make a one-time $900,000 contribution to help stabilize the town's pension fund, which had suffered deep losses over the years. That funding came from money negotiated with the former GMH Military Housing to cover the cost of emergency services for the Anchorage, Coddington Cove and Greene Lane housing complexes.
"All of this is the subject of almost daily review, to make sure we're heading where we want to be," Dible said.
Need for change
Long term, Dible said, the town could get a better handle on its pension and OPEB requirements through its labor contracts. Pointing to concessions recently made by unions representing the town's firefighters and police officers, Dible said givebacks by employees were critical.
After a contentious contract stalemate that went to arbitration, the firefighters union signed off on several changes in mid-April that town officials said would have positive long-term fiscal implications. Among those was a provision that any firefighter hired after July 1 would be part of a 25-year pension plan instead of the customary 20 years. Firefighters also were required to make an additional 1.5 percent contribution to their OPEB fund.
In September, the police union also approved a 25-year pension plan for new hires, along with other concessions.
"I think it's the sign of the times," Dible said. "When you read the newspaper or watch the news, you see it happening here and everywhere."
According to information released by General Treasurer Gina M. Raimondo as part of a statewide pension-reform proposal, Middletown would have faced an additional $2.1 million-plus in pension payments in the upcoming fiscal year unless changes were made. That would have brought the total pension obligation for town and schools to close to $8.2 million for fiscal 2013 - and that figure does not include OPEB requirements.
"We know there isn't another $2 million we can take out of our budget," Dible said, "and it's not something the taxpayers can afford, so something has to change - $2 million is a lot of money to make up."
The Town Council earlier this month approved a resolution supporting the statewide pension reform campaign.
The town is in good position to report on its individual pension plan - known as the John Hancock plan - as required by the legislation approved last week by the state, Dible said.
Starting in 2000, within the context of labor negotiations, many municipal employees opted to shift into the state plan, which accounts for a majority of the pension costs on the municipal side, close to $3 million in the current fiscal year. Ten years ago, the total obligation for the Hancock plan was $1.6 million.
"We've been managing this for the long-term, going back 10 years or more," Dible said. "That doesn't mean it gets any easier or the numbers improve."
Weber said the challenges are clear.
"We have to do something different or we're going to be bankrupting our future generations before they even start," he said.
"I think the problem with all this stuff is that sometimes it's all too complicated," he said. "We need it to make it make sense to people and explain how this is going to affect them by talking about the economy and quality of life.
"Those are the things that people understand and will sit up and pay attention to."

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