Tomorrow is the annual Town Budget meeting but there is a topic you will not hear too much about at the meeting, pensions. It is one you should be aware of as a taxpayer. We as a community you, I and your neighbors owe a lot of money and the size of the bill is growing. The unfunded pension account for the Town of Coventry has been building and the payout potential is growing.
This is a financial problem that has received little public notice but it can not be ignored. We can only kick the can of financial responsibility down the street so far before the game is over and we all have to pony up a payment.
The Town has a defined benefit pension plan for most of our employees, we have granted them the pension benefits, we owe it to them and the time is coming for many to start collecting. Should you be concerned about the coming outlay of money, do you think we have enough set aside or are we just going to cross that bridge when we come to it?
Here are some facts surrounding this issue:
The Town does not set aside 100% of the money due under contracts for pensions. That is not unusual but the Town should have 70-80% set aside to cover the obligation to present a solid financial picture for bond ratings. Here is the balance of unfunded pension liabilities since 2000 you can see the direction we are heading;
Year Amount Unfunded (amount we are short)
2000 $ 968,599
As of the last audit (6/30/2010) we had a funded ratio of 55.7%. The funded ratio has dropped since 2006, to put that into perspective here’s some history. In a Finance Committee meeting of March 12, 2007 the topic of discussion was raising the funded level to 80% as a target of the Pension Committee. Remember we are now at 55.7%. Town Manager John Elsesser said at that time, “A threshold of 70% might not be acceptable”. He went on to say, “we have to look at percentage ratios, because that’s what Moody’s looks at and it could be costly the next time the Town borrows money.”
We currently only have set aside 55.7% not anywhere near the target of 80% discussed back in 2007 but is that a problem? According to the minutes of the Pension Committee from December of 2010 the average age of plan members is 50 and normal retirement age is 62. It is clear that we will need to provide better funding in the time going forward better than we have in the recent past.
If you are thinking at this point well, we don’t need all the money at once consider this: a clerk recently retired and took a lump sum payment out of the fund in the amounted of $185,235. (This can be verified in the Pension Committee minutes) This amount is more than the contribution approved to be paid into the fund by the Town Council at a recent meeting. That’s correct they approved putting in $99,900 and the employee rightfully removed $185,235 this year. To make it clear the additional funding approved by the Town Council was above the amount originally budgeted for and paid into the fund for the year.
Now some will argue that lump sum payments should not be allowed, or that defined benefit plans are outdated and should not be allowed but the reality is we permitted the benefits in our labor contracts and we owe the money. The only question is how are we going to pay for the benefits and will we have the money set aside when we need it? The time is coming to face the music of financial responsibility.
Taxpayers all have ideas about budget priorities in education, roads, emergency services, and open space, rarely is there much talk about future pension obligations but they can not be ignored. The instant gratification of spend now will hit home when we pay later, and pay we must when it comes to pensions.
As the sun sets on this year’s budget process does darkness loom on the horizon? Time will tell.
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