Finance Board, Director Dissecting Pension Information

By John Voket

The swirling storm of pension losses that have blown away huge chunks of municipal investments in towns across Connecticut over the past year-and-a-half have done comparatively less harm here in Newtown.

But that is not stopping local finance officials from working to understand how to minimize further damage, while putting the best plan in place so any potential future losses can be managed without severely compromising municipal and school spending or spiking tax increases down the road.

The Board of Finance was scheduled to meet May 28, after The Newtown Bee went to press, to review a package of information being compiled by Town Finance Director Robert Tait. Mr Tait said Wednesday that he was planning to present pension fund data on about a dozen towns with similar characteristics as Newtown. In the course of his research, Mr Tait also came up with some surprising detail on exactly how much pensioners are benefiting from their municipal retirement program.

“The average retired police officer is receiving $29,443, with the median annual payout at $28,358,” Mr Tait told The Bee, referring to the separate pension fund established for local police retirees. “But on the town side, the average pensioner is getting $8,664, with the median payout being only $4,975 annually. Now that could be higher in the future, but I think that is still comparatively low to most other towns of our size.”

Newtown’s current participation in the municipal pension plan stands at 177 town workers, retirees, and those who no longer work in town but still qualified for pension benefits. On the school side, participation stands at 232.

Mr Tait said that $492,222 being contributed to the plan in 2009-2010 by participants equals 4.1 percent of the overall payroll for town and school workers, excluding police, and that employees’ contribute 2 percent of their pay annually toward their pension. But at the other end of the equation, the two choices for payout on the benefit may explain why the annual draw against the pension fund is so comparatively low.

Townside employees have the option of choosing a payout based on 2 percent of their final average compensation for the last three years of employment, multiplied by their years of credited service, less 50 percent to account for social security benefits; or choosing a payout totaling 1.15 percent of their final average compensation multiplied by their years of credited service.

To illustrate, Mr Tait said a town employee opting for the 1.15 percent payout whose average compensation is calculated at $50,000, times 20 years of service would receive a pension benefit of $11,500 per year. While that same employee taking the 2 percent option would receive about $10,000.

In contrast, the Town of Fairfield, where Mr Tait worked prior to taking the finance director’s position in Newtown, an employee with a similar term of service and earnings would receive a 2.3 percent payout or about $23,000 — double Newtown’s best pension option.

Newtown’s police, he said, enjoy a somewhat more robust plan with a 2.25 percent multiplier, which instead places a cap on payouts at 50 percent of participants’ base salary at retirement.

“That means a retiree who was making $80,000 can’t collect more than $40,000 annually,” Mr Tait said.

There is also a stipulation for those injured or disabled in the line of duty, which allows an 85 percent of salary cap, less other expenses like workers compensation and social security, the finance director added.

“Most towns that we’ve looked at so far pay about 2 and 2.5 percent times the years of service,” Mr Tait said. He said while Newtown is in a comparatively good place with town pension contributions representing less than half of one percent of the overall budget, “some towns are higher.”

Newtown’s total pension contribution for the coming fiscal year including the police plan will total 0.81 percent of the total budget. Greenwich, one of the town’s being researched by Mr Tait, is paying out 1.8 percent of its budget, or $6.6 million this year.

The finance board has been keeping the town pension issue on the front burner since its members learned during 2009 budget deliberations that the Newtown fund had lost about 20 percent of its value. Since that report, the fund has gained more than $1 million back against the $5 million net loss since February 2009.

Finance board Chair John Kortze said this week that he suspects the town will have to contribute in excess of $400,000 in the coming year to make up for losses, which are attributed primarily to global financial forces that have affected every corner of the economy during the current recession.

Mr Kortze said he was also concerned that the 8 percent annual earnings projected for town pension investments, which are managed by Westport Resources, have only achieved an average 4 percent gain. He expected his board to further examine that aspect of the pension administration during this week’s meeting.