Newtown Finance Director Robert Tait calls them “horror stories.” He is referring to endless news reports from states and cities including Connecticut and many of its 169 municipalities, about the horrible condition of public employee pension plans.
But he said in a February 5 interview with The Newtown Bee that neither pensioners nor taxpayers should be too concerned about the state of Newtown’s pension system. And he reminded taxpayers that every year, they benefit to the tune of “millions…possibly as much or more than a million a year,” because several years ago, Newtown chose to add a caveat to the payouts it provides retired town employees.
The finance director believes Newtown may be among just a few towns statewide that amends its annual payout to pensioners based on the amount they collect from Social Security.
He said, in effect, that Newtown comes out of the gate with a taxpayer leveraged advantage because the town is reducing annual pension payouts by half of each participant’s annual Social Security benefit.
“So if a town employee retires after 20 years earning an average of $60,000, and qualifies for the pension, you calculate 20 years at two percent to produce a payout of 40 percent of their earnings,” Mr Tait explained.
“That average salary of $60,000 generates an annual pension of $24,000,” he continued. “So if that person is earning a Social Security benefit of say, $26,000, the pension payout is further reduced by half that benefit, or $13,000.”
Mr Tait said it may not seem like a lot of money in a case-by-case scenario, but taken over the landscape of dozens of retirees year in and year out, it adds up fast.
“It saves Newtown taxpayers millions,” the finance director said. “At one point we had the actuary figure it out and I think it was possibly as much or more than a million a year.”
Contributions to the town’s separately administered police pension were a sore issue January 29. That evening Police Commission Chairman Paul Mangiafico told the Board of Selectman a required contribution to the retirement fund worked against his goal to bring in a zero-increase budget request this year.
“That is one expense where you have no option of cutting,” Mr Mangiafico told The Bee.
That evening the selectmen also heard from representatives of Westport Resources, which administers the town’s pension plan. But the selectmen were not enthusiastic about the news.
According to Mr Tait, while a benchmark standard of 11 percent in earnings was calculated as an industry median, Westport Resources’ rate of return for the first six months of the fiscal year stand at about six percent.
“The selectmen were unhappy with the rate of return at six percent against that benchmark of 11 percent,” Mr Tait said. “That’s quite a spread – it represents assets we could have received.”
He said an increase in the contribution to Newtown’s pension that is part of the 2014-15 budget proposal is “due in part to poor performance (of pension investments) this year.”
The finance director said, however, that by December 31, 21013 the fund’s performance was improving, noting it is now about two percent off the rate of return benchmark. At the same time, he said officials are choosing to wait for final year-end earning figures before making any decisions related to how the fund is being managed.
Mr Tait said during the January 29 meeting, selectmen learned that a policy limiting how fast or flexible Westport Resources can reallocate amounts split between stocks and bond purchases could be part of the reason why pension earnings continue to lag behind the benchmark.
“They have limited flexibility to move between those two categories of investments,” Mr Tait said.
Ultimately, Mr Tait said it is most important for Newtown pensioners to know that the Board of Selectmen’s budget for the pension is fully funded at slightly higher than 100 percent, and the police pension is “quite healthy compared to other town police pension systems,” at 86 percent.
On behalf of taxpayers each contributing money every year to keep those pensions funded, Mr Tait said, “we want the pension performance to be the best it can be.”
“Taxpayers also need to know that Newtown is not like those horror stories they keep seeing in the news. Our pension is not the size or scope of most of the systems that are in trouble,” he said. “This is not a Cadillac plan.”
Compared to the town’s contribution to employee medical insurance benefit, which tops $13 million after employee contributions, Mr Tait said taxpayer underwriting of the pension plan stands at $820,000 for the municipality and $365,000 for the Board of Education.
To further benefit taxpayers, beginning January 1 all new nonunion hires to the town are participating in a defined contribution plan, as opposed to the defined benefit plan the remainder of town pensioners are on – similarly to most other municipalities and the state.
And the finance director said he expects Newtown will begin fighting to negotiate a defined contribution pension option into all future town union contracts beginning this year, much like other towns and cities are doing across the state.
Source: The Newtown Bee