Amidst a sobering financial picture for many state and local governments, Fairfield town officials reported a cautiously optimistic outlook for the future of its town employee pension funds to the Representative Town Meeting (RTM) on Monday night.

Compared with its net assets held in trust for pension benefits at the end of the 2008-09 fiscal year, the town posted a 2009-10 rate of return of about 9.5 percent, bringing its net assets up to more than $250 million.

That rate of return for Fairfield's town employee pension funds exceeded the town's annual average target rate of 8 percent during a 30-year term. The rate was encouraging given the current economic climate, said Paul Hiller, the town's chief fiscal officer.

"We are in far, far better shape than most of our peers in the state of Connecticut," he said.

During the last fiscal quarter -- from July through September -- Hiller said the town's pension funds performed particularly well, posting an asset increase of almost $25 million. That uptick works out to a quarterly rate of return of about 10 percent.

The recent growth of the municipal employee pension funds sharply contrasts its disappointing performance during the past five fiscal years, when its pension funds only managed a 0.3 percent average annual rate of return. In addition to suffering from poorly-performing equity markets during that time, the town's pension funds were also defrauded of more than $40 million through the massive Ponzi scheme orchestrated by Bernie Madoff, a once-legendary trader now jailed for his crimes.

Despite the relatively sound fiscal health of the town's pension funds, both Hiller and First Selectman Kenneth Flatto indicated the town's annual target rate of return for those funds could be adjusted in the future. The town's target rate was last changed several years ago when it dropped from 8.5 to 8 percent. Any new change would require the approval of the town's Joint Retirement Investment Board, which manages the pension funds.

When asked by RTM member Cristin McCarthy Vahey, D-6, about the impact of a possible change to the target rate of return on the town's annual budgetary contribution to its pension funds, Hiller responded that "it would move the number, as far as the recommended contribution, substantially."

In the interim, Hiller told the Fairfield Citizen that several members of the Investment Board, the Board of Finance, and the RTM have voiced support for de facto "stress tests" that could measure the hypothetical effect of changing the pension funds' target rate of return.

Adjusting the pension funds' target rate of return could also be accompanied by a change in the town's projections for annual average salary increases for town employees. Hiller said the town currently manages its pension funds based on an expected annual average salary increase of 4.5 percent. The actual salary increases, however, have not surpassed 4.1 percent in recent years, Hiller said.

By the end of the calendar year, Hiller said the town would also likely "re-establish investment" in several new hedge funds, an asset class that he said had produced "very successful" results in the past for the pension funds.

A variety of asset classes -- including domestic equities, fixed income, real estate and private equity -- currently comprise the town's pension funds.

The town's pension funds actually pay out benefits to two separate plans -- one for police officers and firefighters, and another for all other town employees. During the past fiscal year, payments to the two plans totaled about $14 million, with both plans receiving about half of that amount.

Hiller emphasized though that any change to the pensions funds' target rate of return would likely go in one direction.

"There's not a debate to go back to 8 and a half," Hiller added. "The debate is do we go lower."