Finance Board Looking For Independent Opinions On Pension Performance

By John Voket

After the final throes of the 2009-2010 budget deliberations put Newtown’s pension plan back in crisp focus, the Board of Finance is continuing to reexamine the plan’s performance in light of a 18.8 percent loss that was reported as of March. During the finance board’s regular meeting this week, discussion centered around whether or not to advise requests for proposals, or a formal ratification of pension advisors be conducted on a regular — possibly annual — basis.

On the suggestion of Finance Director Robert Tait, the board may also consider soliciting an independent performance analysis of the fund’s management, based on peer-to-peer standards, and not relying solely on information being provided to the pension committee by Westport Resources, its pension management firm.

During finance board deliberations in the first few days of March, the finance board learned from Pension Committee Chair Robert Murtha that the fund’s consultant suggested hedging against existing and possible future global economic fallout by making between a $400,000 and $1 million additional contribution to ensure the pension’s account would remain fully funded in 2009.

Then, during a March 12 meeting, the Board of Finance moved a $250,000 increase to the town pension contribution in 2009 to reflect declining investment value. That action came under fire by the Board of Selectmen, which in subsequent deliberations determined the town side contribution should only be $150,000, with the school district contributing $100,000 because of a 60/40 split between town and school pension plan participants.

On April 1, the Legislative Council’s final reduction motion, which passed on a voice vote, removed the $250,000 pension fund bump with the agreement to add money from other sources, if required, based on the outcome of an actuary evaluation.

Evaluation Delivered

That evaluation was presented May 4, with the Board of Selectmen, the pension fund’s Account Executive David Leonard of Newtown-based TR Paul, Inc, Finance Director Bob Tait, and finance board members Mike Portnoy, Jim Gaston, and Joseph Kearney in attendance.

Town Human Resources Director Carole Ross was on hand and served as secretary. And representatives of Westport Resources, the firm managing the town’s pension plan, were also on hand, including CEO John Vaccaro, Rudy Polanski, and Frank Sterneck.

Democratic Selectman Herb Rosenthal has reported previously that he has personal interest in Westport Resources and excluded himself from any votes as he has done in the past. During a September 2, 2008, selectmen’s meeting during which his board was introduced to Westport principals, Mr Rosenthal said as a selectman, and former first selectman, he has done his job as a trustee of the fund but he has not participated in the selection of or the retaining of Westport Resources.

A biannual filing of disclosure about Mr Rosenthal’s position with the company, per local ethics rules, is also posted in the town clerk’s office. In interviews following the May 4 presentation before the pension committee, neither Mr Portnoy nor Mr Gaston said they recalled hearing Mr Rosenthal make any statement regarding his relationship to Westport Resources that evening.

During the May 4 pension meeting, Mr Leonard of TR Paul reiterated information detailed in an earlier memo he dispatched to the town. That memo breaks down an estimated $444,450 increase in the annual contribution requirements based on the nearly 20 percent loss the fund experienced recently.

Until then, most reports provided by the pension committee, and the Board of Selectmen’s annual reviews of the pension investment performance, indicated favorable and even comparatively unique positive trending against other companies that are more fully engaged in municipal pension plan management. Mr Tait said currently, Newtown is the only municipal pension fund Westport Resources manages.

In his report, Mr Leonard said as a result of the 18.8 percent losses, a practice of “trust asset blending will leave the plan in a deficit situation going forward in the neighborhood of $4 million.”

“Unless the trust bounces back in a huge way, the annual contribution will keep increasing about $100,000 a year because of the 2008-2009 performance, beyond the other increases illustrated,” Mr Leonard concluded.

Future Vs Immediate

During his report to the full finance board this week, Mr Gaston explained that while the pension committee provides sometimes long-term advisory opinion to the selectmen as fiduciaries of the plan, the finance board looks at pension issues in the immediate during each year’s budget deliberations.

“We look at smoothing the liability by funding part of that liability every year,” Mr Gaston said.

Mr Kearney said he was concerned that most pension committee members had served on that panel for some time, and that they appear to rely solely on the fund’s actuary and advisor’s recommendations. He also observed that there was no real detail made available about “how pension advisors are remunerated.”

“I’m not suggesting we change for the sake of change, but that we move towards a formal ratification of advisors in a one- or two-year term,” Mr Kearney said. “Even if we use the same people, let’s formalize this thing.”

Finance board members also discussed the fact that current investments assume earnings at eight percent, but the firm’s ten-year projection of earnings currently illustrates a four percent trend. Ultimately, several members also called for an independent examination of fund performance to be conducted.

“How has [Westport] been doing against their peer group?” Mr Portnoy asked. “The answer [from pension board members] was they did better than [members’] individual fund performance.

“But trustees should know how well [Westport] has done against peer managers,” he added.

Finance board Chair John Kortze weighed in saying it appeared that a lot of the pension management is “based on premise — what we were told to do.”

“I’m not sure that’s a prudent way to approach [pension fund management],” Mr Kortze said. “Comparing against personal fund management is not the way we should be looking at this as a town. Our guidelines and investment policy may not be consistent with a contemporary marketplace.”

According to Mr Portnoy, Mr Rosenthal asked at the end of the May 4 meeting what the pension committee would recommend doing about the fund. The Pension Committee replied that it will convene a regular meeting May 18 to discuss this and make their recommendation to the trustees of the plan, the Board of Selectmen.