October 30, 2008

City eyes pension options

Faced with the need to pump as much as $8 million annually into a fund for health care for retired city workers, officials are eyeing three potential options.

One is to continue a ‘pay as you go’ tradition that is currently costing taxpayers about $1.8 million annually, though that number could rise tenfold within a decade.

Another is to renegotiate the post-employment benefits that municipal workers receive to lower the cost, perhaps by reducing the 10-year period that worker remain eligible for full health care coverage.

Finally, a new city committee is eyeing the possibility of tapping into overfunded pension accounts in order to use some of the excess to pay the tab – a move that would immediately lower property taxes by nearly half a mill.

City Councilor Ken Cockayne, who pushed for the committee’s creation, said that shifting the money is “the one drastic step” City Hall could take to help ease the burden on taxpayers.

After hearing the options laid out in detail by city Comptroller Glenn Klocko this week, the new GASB 45 Committee, named for an accounting rule, plans to study the information carefully before taking any action.

“We should probably take some time and go through this,” said T.J. Barnes, a member of the new panel.

Mayor Art Ward said the committee will make its recommendations to the Joint Board, which consists of city councilors and Board of Finance members. It will have the last word, the mayor said.

Klocko said the city needs $71.7 million to cover the anticipated future costs of the post-employment benefits other than pensions. He called the figure “the problem child we’re dealing with.”

It has a trust fund established to cover that tab, but “the problem is we don’t have any funding” for it, Klocko said. The trust fund is empty.

Klocko said that bond rating agencies want to see that Bristol has a plan for dealing with the issue, not necessarily a complete solution to the problem.

Continuing the ‘pay as you go’ practice, the comptroller said, “is going to get very difficult” because rising costs will eventually make it almost impossible for taxpayers to cover the yearly tab.

In Norwalk, which adopted a plan recently, officials plan on putting $2 million a year in tax revenues into a trust to pay the cost. They also renegotiated the benefits union members get in order to lower the overall expense.

Under Internal Revenue Service rules, the city would have to leave at least 120 percent of the expected pension fund needs intact in the existing trust. It could only tap money over and above that figure.

This week, the city’s fire and police pension funds are still so flush that the city could easily meet the IRS rules to tap into them. There’s also enough in the general city trust fund to dip in on a yearly basis.

Overall, the three trust funds totaled $426 million as of Tuesday. They reached a low of $412 million at the low end of the market this fall. They have been as high as $550 million last spring.


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Copyright 2008. All rights reserved.
Contact Steve Collins at scollins@bristolpress.com

40 comments:

Anonymous said...

at least cockayne will have another issue to try and baffle everyone with after his stupid COO issue is shot down - how does it feel to be a loser ken?
"I am a loser" - I love it when I can associate songs with people.

Anonymous said...

poster 1:44

just another union hack!

Anonymous said...

Are you for real?!?

Cockayne could probably run for Mayor right now and would win. It would be close b/c the unions would be trucking people in from out of state to go against him, but the people are finally seeing the light.

Anonymous said...

kenny would lose because he wouldn't be able to walk door to door because he wouldn't be able to get his feet out of his mouth or his butt.

Anonymous said...

The only position Cockayne could successfully run for is village idiot.

Anonymous said...

Cockayne DOES NOT have a clue.
He is led by the nose by some self serving people and does not realize that he is being used.

Ask him to explain what he "supports" and he is usually at a loss to do so.


MAyor?

Get real. Even Ward looks good by comparision.

Anonymous said...

The only thing Ward does better than Cockayne is drink!

Anonymous said...

poster 2:42

He would be a great leader of the village and Cockayne would take his marching orders from the Unions. Like McCauley and Ward do!!
Keep up the good work Cockayne!

Anonymous said...

The pension should stop for all new hires, Or folks that are not vested yet. Listen times have changed and the city should not have to make tax payers pay for something that can be stopped very easily. So..with that said what would be the cost be going forward if they were to stop offering the pension? Maybe the union can come up with something on their own. LOL! When was the last time they cared about their folks! What an idiot I am! Stop the pension and start making employees pay more of their share of the cost for all benefits.

Anonymous said...

3:11 - Wow, what a low life response. In the absence of an intelligent argument....I'll be even Cockayne is shaking his head.

Anonymous said...

349 do your homework the city duz not pay for the pension only employees do

Anonymous said...

2:42 - cockayne would win by default.

Steve Collins said...

Actually, 4:34, you're wrong.
between 1982 and 2005, when nearly all of the money that went into the pension program arrived in the fund, here's where it came from:
For the general city fund, taxpayers put in 54 percent of the cash while employees put up the rest.
For the fire trust fund, taxpayers put in 86 percent and employees just 14 percent.
For the police trust fund, taxpayers put in 83 percent of the money, while employees put up 17 percent.
Overall, taxpayers put about $64 million in the fund and employees put in about $27 million.

Anonymous said...

You are correct to a point the city duz not contribute at this point in time nor have they in quite afew years.

Anonymous said...

Money could be transferred and the fund would still be overfunded. It is great that we can do this. It helps everyone - the taxpayers, the union membership, and the city as a whole. I don't understand what all the fuss is about. The facts were laid out well last night. This is a very smart move.

Anonymous said...

"This is a very smart move."

Oh, no wonder Cockayne doesn't understand it!

Anonymous said...

so how come lame-brain cockayne can't understand the process, does it evolve counting- friggin worm.

Anonymous said...

Isn't Cocaine the one that initiated this process?

Steve Collins said...

The idea's been batted around for a couple of years, but Cockayne gave it some legs by raising it repeatedly earlier this year, convincing the mayor to form the committee that's now investigating the issue.

Anonymous said...

yeah cockayne sure showed his appreciation to ward didn't he? where did the stupidity of call ing ward a coward come in? I really think that ken's mommy should take him for a head evaluation.
real great example for your kid ken - am sure that he'll be proud of you when the kids at school hear about your disrespect - great example.

Anonymous said...

I can't believe that the city is talking about give backs in regards to medical benefits. Officers who have been there and served the city for years don't get medi care and they don't get social security, now you want to take their medical benefits too. We've paid for our benefits along with being tax payers in this city so all of a sudden when times get hard it's, lets blame the unions and the city employees and lets see what we can take from them. Try to remember, we're tax payers also and we feel the hard times too, we don't live here for free.

Anonymous said...

Get rid of the pension! So long pension! Hello new day!

Anonymous said...

"Get rid of the pension! So long pension! Hello new day!"

....betcha wouldn't be saying that if that pension was yours.

Anonymous said...

To All You rank and file UNIONITES: Tell your HACKS BOSSES: Study the issue...(they may find that hard to do)DO NOT listen to your HACK BOSSES AS they suck off of your dues the way they want the union to suck off the tax payer. Rank and file are going to lose it all...your bosses will be ok however because they get your dues PLUS the pension!!Losers will be rank and file good people who do a generally good job.

If it goes to REFERENDUM...rank and file LOSE. HACK BOSSES (Petosa) are screwing you guys when the solution will allow you to keep both the pension and medical benefits.

Personally I hope you lose it all as it is too much of a burden for tax payers. LET IT GO TO REFERENDUM
GIVE THE PEOPLE WHO PAY A VOICE.

energyplus said...

I love to see the union faithful running scared...and Ken Cockayne's the reason why.

freedom writer said...

The unions, and the politicians they have in their pockets, are afraid of honest public servants like Ken Cockayne. Ken has no problem confronting the corruption, scandal and fraud that exists in local politics. He one taxpayer advocate who doesn't back off from a challenge. And Ken will ALWAYS do the right thing...he an honest guy. And the many other bloggers are right...he could be mayor just by agreeing to run. I'll bet that most of the negative comments about him are from union lifers, their friends and family and anyone else on the dole...they're afraid of honesty, transparency and accountability. It's clear to anyone with eyes to see...when someone like Ken rocks the gravy train boat...those scavengers who are on that free-ride will start to writhe and scream. Power to the taxpayers!!!

Anonymous said...

If I hear one more word about honesty, transparency and accountability, I think I'm gonna "writhe and scream." Lets get real....It really just more bullsh-t, clear bullsh-t, and a great big pile of bullsh-t.

Anonymous said...

"Actually, 4:34, you're wrong.
between 1982 and 2005, when nearly all of the money that went into the pension program arrived in the fund, here's where it came from:
For the general city fund, taxpayers put in 54 percent of the cash while employees put up the rest.
For the fire trust fund, taxpayers put in 86 percent and employees just 14 percent.
For the police trust fund, taxpayers put in 83 percent of the money, while employees put up 17 percent.
Overall, taxpayers put about $64 million in the fund and employees put in about $27 million."

Steve, this info is interesting, but irrelevant. The money was put in the trust funds for the benefit of the pensioners, under the terms of the trust and in control of the trustees. To follow your way of thinking,if you put money in an education trust for your kid and also made him put in part of his allowance, and the fund grew faster than you anticipated, you could call up the trustee and take cash out to buy the kid a car instead. After all, wouldn't that car benefit the kid? And it would be your decision, after all you put in more money than he did.

Anonymous said...

man 'o man - these yes people think that us VOTE NO COO are real stupid - now they are making unsubstantiated accusations of corruption and scandal to scare the people.
You are the ones who are "transparent" - it's called lying, lying, lying - so much for credibility of ken, ken and craig, craig.
the 4 misfits have proven that this whole coo scam was nothing but a farce - run scared you wimps.

Steve Collins said...

8:56 -- First off, you should get a screen name!
I guess I haven't made clear that based on what we heard from Klocko at the GASB 45 meeting, the Pension Board would oversee the use of trust funds for post-employment benefits. That means that it would still operate under the same legal dictate to look after pensioneers.
The reason the IRS allows overfunded pension plans to tap the excess isn't to pay for sewer projects or statues of politicians or executive country club fees. It's to allow money to be put to use to benefit society. In this case, the money would help cover the soaring expense of post-employment health care for the same workers who under the pension plan. Whether it makes sense to do is perhaps not yet clear because there are more legal and technical issues to explore -- as one commenter here who seems to loathe me even more than the norm keeps saying. I happen to agree with that, but I can also see that the big picture looks awfully positive for this whole proposal. Whether the little details work, I don't know yet. Nobody does.

Anonymous said...

"I guess I haven't made clear that based on what we heard from Klocko at the GASB 45 meeting, the Pension Board would oversee the use of trust funds for post-employment benefits."

Thank you for attempting to clarifying that point. FYI, not just one pension board is involved. There are three trusts, there would have to be 3 separate 401h accounts, one for city, one for fire one for police. You still don't answer my main question. What purpose does it serve to break down the contributions into city funds and employee funds, since once the money goes into the trust it comes under control of the trustees? This point was brought out at the GASB presentaion but was never explaied there either.

Odin said...

Not sure if you're asking the right question. Per IRS law, all the money in the three separate pension funds which are currently supervised by the three pension boards (General City, Fire, and Police) must remain under the supervision of those boards. What would be new is that some of the excess funds would be moved into a separate account (but still under the control of the respective pension board!) and be earmarked to pay for retiree health benefits, rather than their pension. Why should Bristol do this? Because once we start earmarking money for future retirees' health benefits our bond rating will improve, and it's a good accounting practice. Why should the unions agree to it? Because by law they get immediately vested in their pension benefits, and their health benefits are fixed for five years. It's a win-win for everyone.

Anonymous said...

"Not sure if you're asking the right question."
I definitely am asking the right question. Some people seem to think that because more city funds than employee funds were put into the trusts, that the city has the right to lower the tax rate with the money. It doesn't work that way with a pension trust or any trust for that matter. The money, once it goes into trust, must benefit the pensioners. As far as the vesting goes, you had better recheck your information. For collectively bargained benefits, the vesting has to be for life or whatever the terms of the agreement says, which I believe in Bristol's case is ten years. There also is some question as to whether this change would have any effect at all on Bristol's bond rating, since once the money moved over to the benefit side, the pension side would be less overfunded. Since it would begin to address GASB 45, it may be favorable, but there are no guarantees.

Anonymous said...

Please explain the need for 8 Million/yr, when I also see the city putting out 1.8 million/yr now.

Anybody?

Anonymous said...

As I understand it, 1.8 million is what the city paid last year for health care for people already retired. According to GASB45, the value of current employees' retiree health care is an extra expense above their wage that adds up during their employment.They earn a percentage of it for every year they work. Again,according to GASB45, the city owes that to the current employees, but up until GASB 45 they didn't have to track it. GASB allows a 30 year time frame to accumulate what is owed. The comptroller figured the total amount, amortized it (it isn't clear how many years) and came up with 8 million per year. The thing is, GASB only requires reporting, not funding and even at that, the amortized amount isn't reported, only tracked. The amount that needs to be reported is what accumulates from the time the GASB45 rule is implemented. The number would actually start at zero for the first year. The argument is that if GASB45 is not addressed, it could affect the bond rating. In reality, there are not many municipalities nationally that are doing this so how negatively it would affect our bond rating is questionable especially since our bond rating is already excellent. This is largely due to the value of the over funded pensions. Ironically, if the city moves forward with this, it may be a wash as far as bond rating is concerned, because it would lower the over funded figure substantially. As Mr. Ward put it in one of Mr. Collins' articles "We may be robbing Peter to pay Paul." (This information is available on the Comptrollers web page . Here is the link.)

http://www.ci.bristol.ct.us/filestorage/3478/3597/LongPresentation.pdf

Anonymous said...

Sorry about the bad link. Try copying and pasting this into your browser. It is the link to the presentation Mr. Klocko made at the first GASB45 meeting.

ttp://www.ci.bristol.ct.us/filestorage/3478/3597/LongPresentation.pdf

Anonymous said...

Third time is the charm. This link will work. It is Mr. Klocko's first presentation to the GASB committee.

http://www.ci.bristol.ct.us/filestorage/3478/3597/LongPresentation.pdf

Anonymous said...

Thanks for the explanation:
We can always count on Kloko to give us skewed information.

What if we put in 1 million, or two million etc out of the fund each year?
Do we have to do it all at once?

There are many questions to be asked, to be answered.

Anonymous said...

Sorry I don't know why the link won't work. Try this one. It should get you to the comptrollers web page. Then scroll down to the bottom and click on "presentation".
http://www.ci.bristol.ct.us/content/3478/3597/10202.aspx

Anonymous said...

What if we put in 1 million, or two million etc out of the fund each year?
Do we have to do it all at once?

It is more complicated than that. This is the way I understand it.
The type of account is called a 401h account. For starters, there are three separate pension funds, one for police, one for fire one for general city. There would have to be three separate funds. They would be subordinate funds to the main pensions. That means they would be under the control of the main funds' trustees. It also means that if at any time the main pension fund got into trouble, the subordinate account would have to return funds to the main pension.
Next, since the subordinate accounts don't actually exist, they would have to be created. That means the terms of the trusts, which are in the individual collective bargaining agreements, would have to be changed. Since pension AND benefits are mandatory subjects of collective bargaining, this could only be done at the bargaining table.
There are several ways to fund this type of account. The first way is how 401h accounts were originally funded when they were described by the IRS 1n 1964.
Say for example the city contributed 8% of wages to the pension fund. They could designate 25% of that figure or 2% to the 401h. The money would build up over time and be used to pay for retiree health care. This type of funding was not used years ago because it was cheaper back in the 60's to offer benefits instead of higher wages and there was no need to prefund. The city could not use this method because they haven't contribute to the pensions.
The next way is called a 420 qualified transfer. That is a year to year transfer used to pay current year expenses, (the 1.8 million dollar figure). Then there is a 420 qualified future transfer , which allows up to ten years of estimated health care expenses. These methods require the employer to vest benefits for 4 or five years, I'm not sure which. Qualified future transfers are for promise to pay type pensions that are not described in labor agreements, which brings us to the type of transfer that would apply in the city's case. It is described in The Pension Protection Act of 2006 as a 420 collectively bargained transfer. It allows the same ten years of future costs to be transferred but the vesting is for life or the terms of the collective bargaining agreement, which in the city's case is ten years. The thing I am not clear on is whether only actual costs (1.8 millionx10) or 1.8 million + 8 million (amortized costs)x10 could be transferred. Maybe Mr. Cockayne can clear this up for us.