City of Pawtucket Pensions and OPEB Obligations Ad Hoc Committee

 

Minutes

Meeting 03/15/12

 

NEXT MEETING:  THURSDAY, MARCH 22, 2012, 10:00 AM

 

 

·         The meeting began at 10:12 AM.

 

·         Members in Attendance:  Ernest Almonte, Ronald Wunschel, David Moran, Mark Boisclair, Robert Neill Jr., Peder Schafer, John Galvin, Ronald Wunschel and Rosalie DaRosa

 

·         Advising Members in Attendance:  Joanna L’Heureux, Finance Director, and Melissa Malone representing the General Treasurer’s office.

 

·         Mr. Almonte asked for approval of the previous minutes.  Mr. Schafer made a motion to approve and Mr. Galvin seconded the motion.  All were in favor.

 

·         Mr. Almonte asked Ron Wunschel to review the 5 year plan.  Ron noted that the deficit starts at $2.3 million in FY12 and is projected up to a deficit of $15 million in FY17.  However, if the City were to impose the maximum 4% tax levy increase, the deficit would become positive in FY13 at $431 thousand and that positive number would increase to $5 million by FY17.  Mr. Wunschel noted that revenue and expenses were based on minimal increases of 2% to 3%.  Mr. Wunschel noted that the TAN need would remain but would reduce over the years to becoming sustainable with a need for a TAN to help cash flow.  Mr. Almonte asked what the cost on an average household and commercial property would be on a minimum average.    Mr. Wunschel was asked to provide a schedule of the effect of the average tax rate increases would be for both Residential and Commercial for the next 5 years.

 

·         Mr. Schafer asked if the forecast anticipated any increased State Aid.  Mr. Wunschel noted he left all State Aid levels and did not anticipate any increases.  Mr. Almonte asked Mr. Schafer if he was aware of any increased State Aid Provisions and Mr. Schafer noted he was not aware of any increase.

 

·         Mr. Neill asked if not hiring the positions left open in police and fire has helped. Mr. Wunschel noted that it helps if replacements are not hired without sacrificing public safety.  Naturally not having to plan for future pensions helps reduce the pension liability as well as OPEB.

 

·         Mr. Wunschel noted that there is some good news at the end of FY11 which is the next actuary reporting date; market values have increased from $60 million to $72 million.  If nothing else changes, the funded liability increases from 30% to 40%.

 

·         Mr. Galvin asked why there were two different budget forecasts to the State.  Joanna L’Heureux, Finance Director explained that the State wanted two reports, one with OPEB’s ARC Contribution and one without.  Mr. Wunschel noted there is a major difference to budget deficits and cash flow.  Mr. Wunschel also noted that currently, OPEB is on a pay on you go basis while the actuary’s reports notes an ARC of $22.9 million with and earnings rate of 4.25%.

 

·         Mr. Galvin noted that he was concerned with the baby boomers effect on cash flow with the OPEB Plan.  Mr. Wunschel noted that is a concern, because Police and Fire currently have approximately 70 members who could retire before June 30^th of this year as they watch what they believe might be the new contract as of July 1^st, 2012.  The savior which is not a good one, it is the fact that retirees may need jobs if they retire early and they are not plentiful at this time.

 

·         Mr. Boisclair noted that after 23 ½ years there is no increase in benefits and maybe the City should look at increasing benefits to keep members from retiring.  Mr. Wunschel noted that it is true that many members go beyond 23 ½ years with no increased benefits.  He noted that salary does increase and does increase the benefit, however the idea is not one to dismiss and we should ask our actuary to run the numbers for members to stay on longer.

 

·         Mr. Neill questioned the medical reserves surplus.  Mr. Wunschel noted that yes, we have been fortunate with some claims being less than budgeted, and the City has utilized any excess to plug operating deficits in the last few years.  He also noted that self insurance can go the other way and it is the City’s responsibility to cover any negative reserve position, however good or bad the police and fire members are covered with a working rate less than a premium rate.  Mr. Wunschel also noted that we pay approximately $500 thousand for “stop loss insurance” which has been proven to be the way to go.  Over the years we have saved claims over $250 thousand that would have exceeded the “stop loss premium”.

 

·         Mr. Almonte noted that the City has averaged returns for the last five years at 6.38%.  He noted that companies he has discussed returns with are using 4% to 5%.  The City is currently at 7.875% and the State is at 7.50%.  For those years that the City does not attain 7.8%, 5%, or 6% for example, they must make up the different rate of return going forward.

 

·         Mr. Almonte then asked Mr. Wunschel a brief review of the OPEB Actuarial Reports and was turned to the committee for questions.

 

·         Mr. Neil wanted to know the medical reserve position over the last 5 years. Mr. Almonte asked Mr. Wunschel if he would provide that for the next meeting.

 

·         Mr. Galvin noted we must look at not rolling forward 30 years every year.  Mr. Wunschel noted this is not unusual for urban municipalities.  Mr. Almonte noted that we need to keep in mind what is best for the City. Mr. Wunschel stated that the actuary also notes municipalities are not going any anywhere so re-amortizing is not as bad as we may think, however our actuary noted a fixed 30 year or regeneration method will be considered now that the City s near 100% of the ARC for pensions.

 

·         Mr. Boisclair asked if the ARC is now at $10 million and we payout $10 million, won’t interest eventually improve the funding of the plan.  Mr. Wunschel noted it would however but that alone is not enough for a fixed 30 year period and that is why the City/actuary automatically increase the ARC 5%.

 

·         Mr. Galvin also feels the City should ask the actuary to use a more current mortality schedule than 1992.  Mr. Neill noted that he checked out a table of 2000 and did not see a major difference in age expectations.   Mr. Galvin noted just a few years in the life expectancy can noticeable effect the plan.

 

·         Ms. Malone noted that if a person just paid interest on their credit card it would be similar to the problem with the pension plan.

 

·         Mr. Almonte asked about the Cola’s for Police and Fire.  Mr. Wunschel noted that both Police and Fire are at 3%, however both Police and Fire have had different Cola’s over the years and that a member upon retirement get the Cola for life in effect of that time.  Also, some older retirees have no Cola at all.

 

·         Mr. Almonte asked if we could get the difficult Cola’s of retired and how many retirees are receiving each different Cola.  Mr. Boisclair noted that he has requested this information from the Law Department and that it will be made available to the Ad Hoc Commission upon receipt.

 

·         In continuing the Cola explanation, Mr. Wunschel noted that Police and Fire deceased retiree’s spouses receive 120 payments after retirement.  If a member dies after 10 months of retirement, the spouse receives 110 payments.  At the end of that cycle, the spouse then receives 66 2/3 of the pension.  There is some disagreement on whether the Cola’s apply to the payments once converted to 66 2/3 o f payment.

 

·         Mr. Wunschel was asked about medical benefits.  Mr. Wunschel noted that Police and Fire have accepted within their contract to have the City pay medical premium costs plus plan 65 which is considerable less than the working rate for a family plan at $16 thousand.  However this plan although very beneficial to the City does not apply to all Police and Fire because pre 1986 they did not have Medicare deductions therefore cannot collect Medicare and offer the same benefit to the City. However although it is not 100% of the members, it still reduced the OPEB unfunded liability by 36 million.

 

·         Mr. Wunschel noted that the medical plan is for life of Police and Fire and does not stop at 65 as municipal member, however once again, not all police and fire can take advantage of Medicare.  Mr. Wunschel noted that the City gambles with self insurance and is not always successful however in the last few years less claims then budgeted have materialized.

 

·         Mr. Schaefer noted that we should look to Massachusetts for their models.  Mr. Wunschel noted that Massachusetts has laws that prohibit funding an ARC with less than a specific percentage or even 100% of its ARC.

 

·         Mr. Neill noted that its fire department personnel do not all have advantage of medical for life as in the near past three members have passed due to cancer or heart attack.  Mr. Almonte noted that he understands Mr. Neil’s concerns an expressed his condolences.

 

·         Mr. Almonte reminded everyone to send their thoughts/ items which they would like to see incorporated into the plan so that he can prepare what if scenarios with the new  “dashboard” product as he noted last week.  He also gave thanks to the people who have already done so.

 

·         Mr. Lou Soares, a retired fireman noted that he has serious ailments from his service with the fire department and needs his benefits and has earned his benefits.  He noted there is a human emotion to any changes to what he and his fellow retirees have earned and that the commission must keep these things in mind when making any decisions.  In summary don’t look at numbers look at people

 

·         Mr. Galvin made a motion to adjourn and Mr. Boisclair seconded the notion.  All were in favor and the meeting adjourned at 11:50.

 

 

 

 

Respectfully submitted,

 

 

 

Ronald L. Wunschel                                 Debra McDole

Finance Department                                 Finance Secretary