The final say about whether to use excess pension funds to pump money into new trusts to cover health benefits for retired municipal workers will rest with the City Council.
Bruce Barth, a pension attorney, told the city’s GASB 45 Committee this week that the council would need to adopt a new ordinance laying the groundwork for the change that some officials say could save taxpayers tens of millions of dollars.
Named for an accounting rule, the GASB 45 Committee is supposed to examine the issues surrounding the proposal and recommend to the council what course the city should take.
Some union officials have said there are legal complications the city needs to take into account. They also argue that any revision to the existing pension funds should be negotiated rather than dictated by the city.
Barth said the potential shift of money into the new funds for retiree health care “may be negotiable,” but doesn’t have to be.
The basics of the plan are pretty simple.
Under federal law, the city can shift money within its pension trust fund into a new fund for retiree health benefits if the pensions are more than 120 percent overfunded. If the pension fund falls below 120 percent of expected funding needs, the money would be automatically moved back to cover pensions, Barth said.
In any case, the money would remain under the control of the pension fund trustees and would not actually be removed from the fund at all.
Because all the pension fund’ money would be invested as if it was part of a single fund, Barth said, it’s largely an accounting procedure to keep them separate on paper.
City employees would get something out of it, officials said.
Barth said that if the city makes the move, every city worker at the time it’s done would be automatically vested in the pension fund and the city could not change the health benefits it offers retirees for five years.
City Comptroller Glenn Klocko said that taxpayers would gain substantially if the city can do it.
As it is, he said, the city pays out $3.6 million for the health care of retirees, who receive municipal health care for 10 years after they retire.
To get ahead and cope with future demands on the health care system, Klocko said, the city needs to put another $5 million aside annually or it could put $72 million aside all at once.
That’s a tall order for most municipalities, but Bristol has pension funds that are so flush it may be able to do that.
The pension funds this week total about $417 million, with the fire and police funds still well over the 120 percent mark that allows them to be tapped into for the new health benefits account. The general city plan is also overfunded, but it’s probably not much over the mark at the moment after months of battering on Wall Street.
At their height last year, the city plans had more than $550 million between them.
Steve Lemanski, an actuarial expert who consults for the city, said that health care costs are expected to go up about 10 percent yearly in the short term but to slow to about 5 percent annually long-term, if only because the economy can’t cope with the current rate of growth for long.
Lemanski said that the cost of vesting employees early is “really minimal” in the scheme of things.
Klocko said this is the perfect time to explore the option because the market has already crashed. It almost certainly is going to head up again in the years ahead, he said, so the excess in the pension funds is likely to grow larger, not lesser.
Union officials have said they may be willing to go along with the change if the city shares some of the benefit with workers. Among the possibilities, they have said, are giving lifetime medical care to retired employees, dropping employee contributions to the plan or adding some other benefits to those already provided.
What’s most important, they have said, is that the city negotiate with them in good faith rather than dictate changes that might affect money already set aside to pay for employee pensions.
Bristol is one of the few municipalities in the state that has a fully funded pension plan. It is one of the most flush funds in the whole country, the result of a 30-year-old city policy to put aside money for the future expenses involved, a move that is already saving taxpayers more than $6 million annually.
The GASB 45 Committee meets at 5 p.m., Tuesday, Feb. 3 to hear from the city’s financial adviser. After that, it plans to listen to public comments.
The committee chairman, T.J. Barnes, said he would like for it to make its recommendation by mid-February.
Contact Steve Collins at firstname.lastname@example.org