City of Pawtucket Pensions and OPEB Obligations Ad Hoc Committee

 

Minutes

Meeting 03/08/12

 

NEXT MEETING:  THURSDAY, MARCH 15, 2012, 10:00 AM

 

 

·         The meeting began at 10:07 AM.

 

·         Members in Attendance:  Ernest Almonte, Ronald Wunschel, David Moran, Mark Boisclair, Robert Neill Jr., Peder Schaefer, Susanne Greschner, Gary Sasse, John Galvin, Lois Kilsey and Rosalie DaRosa

 

·         Advising Members in Attendance:  Larry Stone, Joanna L’Heureux, Finance Director, Melissa Malone, and Debra McDole.

 

·         Mr. Almonte presided over the meeting.

 

·         Mr. Almonte introduced Larry Stone of Stone Consulting and asked Mr. Stone to explain some of the numbers in the actuary report and then he would open up the meeting for questions.

 

·         Mr. Stone explained that the City has an accrued liability of $201,065,830.  He noted that the accrued liability is a computation of what payments represent on all promises made.  He further explained that the accrued liability represents estimated returns (currently 7.785%), mortality schedules which estimate service length by age as well as assumptions of raises, longevity payments, and promotions after considering expected or average years of service.

 

The market Value of Assets which currently stands at $60,989,068 represents market value after receiving employee and employer contributions and the value of investments made including returns on investments. Also, in effect the current value plus contributions, plus returns, minus payments to retirees represents the end results.

 

The total liability less the market value of assets represents the unfunded liability of $140,076,762 producing a “Funded Liability” of 30%.

 

Mr. Stone explained that OPEB has similar definitions only medical cost inflation upon current employees and future employees with current benefits are utilized.  Returns on investments, etc. are still the main ingredients.

 

·         Mr. Sasse asked if different models could be set up to provide different probabilities.  Mr. Stone responded affirmatively but turnaround time would not be immediate.

 

·         Mr. Galvin noted that in the next 15-20 years we could expect critical payouts and if the actuary took this in to consideration.  Mr. Stone noted that he does not assume a mass movement other than average.

 

·         Mr. Almonte noted even a 7.5 % interest rate assumption may be very ambitious never mind 7.875 %.  Mr. Stone noted that he believes our current interest rate assumption is reasonable however he would not object to reducing the assumption gradually because he did not believe he was presenting a wrong actuary report for current liability due to the rate assumption.

 

·         Mr. Schafer noted that on a short term the taxpayer will pay the contribution however long term should be the return on investments.

 

·         Mr. Stone stated that policy is not an actuary issue.  An Actuary prepares reports based on what he believes not to coincide with balancing, City budgets.  If the City does other than what he recommends, he can only report his recommendations and not enforce them.

 

·         Mr. Neill asked what the rate of return was over the last 10 to 20 years.  Mr. Wunschel noted that in the last 10 years the average was 8.8% after excluding a disastrous 2008 year with a negative return of 20%.  Mr. Wunchel did not feel 2008 was a norm to be averaged.  Currently we have it 30% funded but we were in high as the 40’s funded in the last 15 years.  Mr. Wunschel noted that past administrations felt the years with 10% returns did not warrant making a City Contribution.  Mr. Wunschel noted that if he were present during those years that he would have argued against that thought process. Mr. Wunschel noted upon being questioned that first, Stone Consulting has been with the City since 2001 or ten years and that he believes that approximately $350 thousand is needed for every 1/8 decrease in the assumed rate of return.

 

·         Mr. Boisclair asked what would have been paid if the ARC had been contributed at 100% over the years where no contribution was made.  Mr. Stone noted depending on what year to start this could be a difficult amount to ascertain.  Also, as noted by Mr. Wunschel an actuary was not always hired to perform the task annually prior to 1998.

 

·         Mr. Moran asked what were the percentages of contributions from the City, employees, and return on investments.  Mr. Wunschel noted that more than 95% currently is derived by the City Contribution.

 

·         Mr. Galvin asked if there was a more suitable and up to date mortality schedule made for different groups of people.  Mr. Stone noted that in his experience the updated 1990’s table he is currently using is considered the most practical however he is open to considering a different table that Mr. Galvin may suggest.  Mr. Galvin also asked that if we keep rolling the 30 years if it is proper.  Mr. Stone noted that because cities and towns usually go on forever, that he feels it is satisfactory, however he will be proposing a regeneration method which may be more appropriate in the future.

 

·         Mr. Galvin asked if we had a cash flow.  Mr. Stone noted that we are providing 10 million and very close to making payments of the same amount.

 

·         Mr. Neill expressed that he would like to see an experience study on how long firefighters stay working on the job.  Mr. Stone noted he uses an assumed years of service of 27 years.  Mr. Almonte asked Mr. Neill and Mr. Boisclair to see if their research can come up with a national table.

 

·         Mr. Galvin asked if we use the same mortality schedules for OPEB.  Mr. Stone noted yes, however against medical trends.  Mr. Wunschel noted that the City expenses $30 million in claims on average with 50% School and 50% City.

 

·         Mr. Stone noted that the City saved considerably on its unfunded OPEB when it switched retirees eligible for Medicare to Plan 65 and Medicare even with the City picking up the Medicare premium. (NOTE Mr. Wunschel looked up the effect of this change and at a 4.50% investment return the AAL went from $4.14.6 million on 07/01/07 to $378.2 million on 07/01/09, a savings of $36.4 million). Also, the specifics are as follows:

 

§         Police – Employees sworn in after April 28, 1994 shall receive such benefits on the same basis they had received them under the CBA only until they attain the age of 65 years at which time the City shall provide, at its sole expense with no contribution from the retiree, a Medicare supplemental (individual coverage only).

 

§         Commencing June 30, 2011, employees hired prior to April 1, 1986, shall also continue to receive the present medical insurance plan, family coverage or individual coverage, as the case may be, with the City paying the full cost thereof, unless the employee is eligible through other employment, in which case the employee may elect to receive Plan 65 coverage on the same basis as defined below.  Employees hire after April 1, 1986, shall continue to receive the present medical insurance plan for the life  of the retiree, family coverage or individual coverage as the case may be, with the City paying the full cost thereof, until the employee is Medicare eligible at which time the employee shall receive Plan 65 coverage for the employee, and if married, for his or her spouse, or if the spouse is younger than age 65, individual coverage under the present employee has dependent children, all for the life of the retiree.  The Group Plan 65coverage described herein shall include the skilled nursing facility rider, the  $5/$15/$30 RX coverage with the City reimbursing the Medicare cost for the retiree and spouse for the life of the retiree.

 

·         Mr. Wunschel noted that everyone must consider the balancing act Mr. Sasse referred to earlier.  We cannot change the past and must deal with what we have been given regardless of whom anyone may want to blame.  We must worry about the pensioners and taxpayers and although changes to new employees will not give immediate results, it will stop the bleeding in the long run.  The City and taxpayers cannot fix the problem with increased taxes.

 

·         Mr. Almonte noted that regardless of results, we must all agree on the assumptions and know our true liability and then address the issues appropriately.

 

·         Mr. Almonte asked the Committee Members during the next week to email what types of scenarios they would like to see.

 

·         Ms. DeRosa noted that robbing of Peter to pay Paul principal is not a good idea.  She noted for example that if minimum wage goes up she may be confronted with possible layoffs to make up cost.  She asked if we could slow down the increases and keep that in mind.

 

·         A retired Police Officer, Mr. O’Conner expressed his frustration with the fact that employees made their contributions when the City was not making their contributions.  He asked if the City put in the employees contributions.  Mr. Wunschel noted that in the last 14 years the answer was yes and also, there was no evidence to show that employee contributions were not sent to the Trustee, State Street Bank in the past..

 

·         Former Police Chief Kelley first commended the Board for volunteering their time to this important subject.  He asked if Mr. Stone saw this train wreck coming and if he did anything about it.  Mr. Stone noted his responsibility was to produce the report based on the facts given to him and what he could research through the contracts.  If the City did not provide his recommendation he would advise against it in his next report.  It is up to the City to react to his reports.

 

·         Mr. Almonte noted that his company will be teaming up with two companies to develop “dashboard type software” which will allow assumptions to be typed in and produce what if results.  Mr. Almonte noted that he expects to have this vehicle ready for use with Pawtucket’s Ad Hoc Committee.  The good news is that since Pawtucket is the first user, The Almonte Group will offer it free.

 

·         Mr. Almonte thanked Mr. Stone for his reports and explanations.

 

·         Mr. Almonte expressed condolences to the Fire Department for their loss of Assistant Fire Chief Renzi.

 

·         Mr. Almonte asked for a motion to approve the minutes of the previous meeting.  Mr. Neill made a motion and Mr. Boisclair seconded the motion. All were in favor.

 

·         Mr. Almonte asked for a motion to adjourn. Mr. Neill made a motion and Mr. Moran seconded the motion.  All were in favor.

 

The meeting adjourned at 12 noon.

 

 

Respectfully submitted,

 

 

 

Ronald L. Wunschel                                 Debra McDole

Finance Department                                 Finance Secretary