Allen concerned with Springfield’s unfunded pension liability

June 2, 2016 | G. Michael Dobbs
news@thereminder.com

SPRINGFIELD – City Councilor Timothy Allen expressed concerns about the amount of unfunded pension liability the city maintains at his Finance Subcommittee meeting on May 26.

He said, “It would be irresponsible to go forward [with a vote approving city’s FY17 budget] without a full knowledge of the pension liability. ”

Allen said the city is currently 29 percent funded, the lowest amount in the state. He noted that Holyoke is at 56 percent funded.

“We’re not just in last place, but we’re significantly in last place,” he said.

Allen asked whether or not the city should be contributing at a greater level. The current pension liability is more than $1 billion dollars and the level of other past-employment benefits is at $873 million.

Despite the discussion about how much the city must pay in order to be compliant with state law – all municipal pension programs must be fully funded by 2040 – City Comptroller Patrick Burns emphasized that no one receiving a pension now should be fearful about any interruption of benefits.

“Everyone’s pension is being funded,” Burns said.

Chief Administrative and Finance Officer Timothy Plante explained that under the current plan, the city expects to be 100 percent funded by 2034, leaving a six-year cushion in the case of any problems arising.

Plante explained the City Council must approve the new budget by June 12 and the pension allocation is 6 percent of the budget. He explained that amount would increase to 14 percent in FY18 and FY19 and then drop to 8 percent in FY20.

Plante said the issue of meeting the pension goal is not a new one and noted he made a presentation to the City Council about it in 2015.

Allen shared a letter from the state’s Public Retirement Administration Commission to the Springfield Retirement Board dated April 25 that read in part, “we continue to have serious concerns about the long term sustainability of the plan.”

The letter continued, “Although the [Springfield Retirement] Board adopted an aggressive funding schedule, the unfunded actuarial liability is expected to increase until FY22. Any actuarial and/or investment losses will exacerbate this issue. We expect funding progress will be slow over the next five years to more even on a best case basis.”

The unknown factor is how the city’s investments and the interest revenue they will generate will fare in future years, Plante added.

Burns said the city’s investments suffered in the 2008 recession is an example of a factor that couldn’t be predicted.

A greater amount allocated to the pension could affect the city’s core services, Plante said.

Allen concluded there is not enough time to attempt to change the amount for the pension in the budget before the council, but the council should speak about it for the next budget cycle.

He also noted that with the pension liability as an on-going concern, “approving every financial order requires more thought.”

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