Town to look at long-term pension funding
GREENFIELD — After reviewing its growing liability for future retiree benefits, the town is looking at ways to accumulate enough money over the next two or three decades to cover those costs outside the annual operating budget.
Marjorie Lane Kelly, the town’s finance director, said the town currently spends about $6 million a year covering benefits for its retired employees and their spouses.
Greenfield, like all government entities, is required by the state to find a way to discontinue this “pay as you go” funding of retiree benefits, according to Kelly. That means the town will have to come up with tens of millions of dollars over the next 20 to 30 years.
While At-large Town Councilor Dalton Athey has suggested the town start saving more money into a special account each year, Kelly and Mayor William Martin have said they want to “wait and see” what the state has to say.
Athey most recently suggested that the mayor take $670,000 the town was allowed to raise in extra property taxes under Proposition 21∕2 this year, and put it into an account to start funding the liability, but the mayor and rest of the councilors did not agree.
Martin has said that the state is currently looking at different ways towns and cities could fully fund retiree benefits and that there might even be some help from the state at some point.
The mayor said he plans to have ongoing conversations about how to fund them.
“The liability has always existed and auditors and bond rating agencies knew it existed, but since 2007 municipalities have been required to contract for an annual study and since 2009 we have been required to show it on our balance sheet,”said Kelly.
As of the latest actuarial study, dated June 30, 2012, Greenfield would need $73 million to be considered fully funded.
Elizabeth Braccia, the town’s accountant, said the study is a “snapshot” of where the town is. She said it looks at every employee, their age, their benefits, their life expectancy, and when it thinks each might retire, to determine how much it will cost the town from the time each retires through the remainder of their lives.
“It looks ahead 30 years at long-term, unfunded liabilities,” said Braccia.
Greenfield’s Human Resources Director Dennis Helmus said the town currently has 246 retirees, but he said it is difficult to determine how many it will have in the future because some employees don’t stay with the town for long and some retire without ever becoming vested. A benefitted employee must work for the town 10 years before he or she can receive a pension.
Helmus said the town has about 600 employees right now, but that includes part-time employees who don’t receive benefits.
He said the post-employment benefits included in the $73 million target are pensions and health insurance.
Once the town comes up with the $73 million, which could take up to 30 years and could be done by investing, borrowing or setting aside a lump sum each year, it would no longer be paying as it goes, but instead would be taking the funding from the special account each year.
Town officials agree that the $73 million is not a “real” number, but a “guesstimate,” one that gives the town a best target at this point.
Helmus said a lot could change over the next decade or two, including new laws or changes in what the town and its employees negotiate in contracts, which could mean it might cost the town less than the $73 million to fully fund the liability over the next two to three decades, or it might cost more. He said only time will tell.
The state itself is not exempt from the process, as it has its own liability for state retirees, said Kelly.
Recent legislation has amended existing laws concerning health insurance for active and retired employees, with an eye to controlling those costs.
Currently, a commission is charged with developing legislation that will provide funding methodology for OPEB (other post employment benefits).
“Greenfield is not unlike every other town in Massachusetts, and Massachusetts is not unlike nearly every state in the nation,” said Kelly. “Most states and municipalities have a liability and are struggling with finding the most effective and economical way of funding it.”