Financiers want projected Fairfield pension payments evaluated
The Fairfield Board of Finance wants the Joint Pension Board to review and evaluate criteria used by the town's actuaries in determining the annual contributions to both the municipal pension funds and trust funds for retiree medical benefits.
The request came during the finance board's quarterly review Tuesday night when it received a report from Hooker & Holcombe Inc., the actuaries hired by the town for the funds.
According to Elizabeth Churney from Hooker & Holcombe, the town's annual required contribution, or ARC, for the police and fire and town employee pension funds are projected to triple in the next five years -- from $5.46 million for 2011 to $17.4 million in 2016.
The contributions to the Other Post Employee Benefit trust funds are $8.8 million for 2011 and $9.3 million for 2012. Right now, the town does not fully fund the OPEB recommended contribution, but has committed to do so by 2013.
Finance Chairman Thomas Flynn said he isn't comfortable with the 8 percent assumed investment return used for the pension funds. He noted that many states use a similar assumption, but pointed out that nationally many municipal pension funds are in trouble.
"Following them right into the ditch doesn't make me feel good," Flynn said. For 2009-10 the return on market investments was 9.2 percent.
Board member Kenneth Brachfeld said over the last 12 years, the return rate on investments was 3.8 percent, a figure that First Selectman Kenneth Flatto disputed. Flatto said that it was actually 6 percent.
Brachfeld said he would like to see a matrix that showed what the ARC would be if the return came in lower or higher, adding that information is important to the Board of Finance when making funding decisions on other town expenses.
Flatto said such numbers would be artificial. He also said that there are other assumptions used, such as salary increases, cost-of-living adjustments, retirement age and mortality. Those can also change, he said, and therefore change the ARC.
For example, if the salary scale and COLA assumptions are decreased by 0.5 percent, the ARC drops from $5.46 million to $2.66 million.
"This board, and the pension board, are going to want an evaluation of the assumptions going into this, the logic behind them so we can feel comfortable with the conclusions being drawn," Flynn said. A matrix like the one Brachfeld suggested could be used, but her added, "At the end of the day, you're going to have to pick something and go with it."
Any decision to conduct a review is up to the Joint Pension Board, and Flatto said there has been recent discussion about doing that.
Churney said it would take about one to two months to complete and it is logical to do it for both the pension and OPEB because many of the same assumptions are used. "Conceptually, these are the same people," she said.