Performance of the pension fund continues to demand attention

Greenwich-Voices-GoldrickIt’s unlikely there are many topics that sound as mind-numbingly dull to people as a long discussion about pension funds. But there are also few areas of state and municipal budgets that are more critical.

That’s why it’s so important to focus on the state of Greenwich’s pension fund. Greenwich manages a single pension fund that invests assets for beneficiaries of the town’s defined benefit pension program. Unlike some other cities and municipalities, the town doesn’t operate separate pension funds for police or other employees.

Several years ago, the plan was closed to new town hires, except for members of the uniformed services, meaning firefighters and police officers. Town employees who were hired before the plan was closed, which included those in all town departments and the town-owned and operated Nathaniel Witherell nursing facility, have been grandfathered. New non-uniformed employees participate in a defined contribution plan.

The pension fund’s assets now total over $360 million. But poor capital market performance over the past decade, combined with sub-par investment returns, have resulted in unfunded liabilities on a market value basis of $155 million. According to a recent report from the town’s Retirement Board’s actuaries, Boomershine Consulting Group, that translates into funded liabilities of 70%, representing a significant drop from the middle of the past decade when the plan was fully funded.

Each year the town has funded in full its Annual Required Contribution (ARC). That figure is based on the percentage return that the Retirement Board estimates its investment portfolio should earn annually over a period of several years. That percentage was reduced recently from 7.75% to 7.5% and the BET will soon decide whether to reduce the ARC further, to 7.25%.

According to work done by Mike Wacek, the median for southwestern Connecticut suburban communities is 7.5%, though the mean is lower. A year ago, Greenwich contributed $16 million to the fund. That contribution rose to $19.8 million this year, representing just over 5% of the town’s total budget. If the town reduces the estimated return to 7.25% this year, the ARC will rise to $22.7 million next year. Keeping the estimated return at 7.5% would reduce the ARC by $1.4 million.

Sub-par investment returns and poor overall capital market performance have combined to substantially increase the town’s required contribution. Only $7.8 million of the projected $22.7 million ARC is attributable to the “normal cost” of pension contributions. Fully two-thirds of the amount, or $14.9 million, is the cost of amortizing the pension plan’s unfunded actuarial liabilities.

A bipartisan proposal presented to the BET asked that a Connecticut law firm experienced in pension fund issues be engaged to work with the BET and examine alternative structures for the Retirement Board that could improve performance over the long term. Currently, the board is constituted as an independent entity, whose five members include two individuals elected by the plan’s beneficiaries and two appointed by the first selectman and chairman of the BET. An ex officio fifth member, who casts a vote, is the town’s comptroller.

It’s time to consider whether this structure is capable of effective, consistent management of the fund, particularly in light of the fact that, as calculated by New England Pension Consulting, it has underperformed the median for public pension funds in each time period measured over the past 10 years. Perhaps a better structure would have the Retirement Board outsource pension fund assets to an investment management firm, then closely monitor performance, changing fund managers if performance lags. The BET could provide oversight and review of that performance on a periodic basis.

It’s important that we minimize required taxpayer contributions through effective investments, while also providing a secure retirement for Greenwich town employees.

 

Sean Goldrick is a Democratic member of the Board of Estimate and Taxation, though the opinions expressed in this column are his own. He may be reached at [email protected]

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