, Newburyport, MA

July 25, 2013

Pension accounts woefully underfunded

By Dave Rogers
Staff Writer

---- — NEWBURYPORT — A recently released report gave Greater Newburyport communities failing grades for meeting barely half of their funding obligations for employee pension plans.

The Boston-based Pioneer Institute gave F’s to Amesbury, Newburyport and the Essex Regional Retirement System, which includes Salisbury and Newbury, for their “funded ratio,” which measures the percentage of current and future pension costs that retirement boards have covered.

According to the report released last week, Amesbury has less than half of its costs covered, while Essex Regional has about 51 percent covered. Newburyport leads the region with a 58 percent funded ratio, yet not good enough to warrant a passing grade from the Pioneer Institute.

Many of the institute’s facts can be found inside the Public Employee Retirement Administration Commission’s annual report, used as a resource for community finance directors.

According to the PERAC annual report, Newburyport has $36.1 million of unfunded liability and Amesbury has $39.1 million. Essex Regional, which runs the pension systems for 19 communities, has $257.8 million of unfunded liability. “Unfunded liability” is an accounting term for the amount of money needed to fully fund pensions that employees are expected to collect in their retirement years.

As recently as 2001, Amesbury’s ratio was around 72 percent but it saw a precipitous drop of 10 percent the following year. Amesbury Mayor Thatcher Kezer said twice in the last 10 years, the city offered employees early retirement deals that negatively impacted the funded ratio.

The issue of unfunded employee retirement pensions hit the national stage last week when the city of Detroit announced it would seek Chapter 9 bankruptcy to shed itself of an estimated $20 billion in debt. About a billion of that debt is attributed to promised retirement pensions. Should a federal judge grant the once-great Motor City bankruptcy protection, it could shred the pensions of thousands of retirees.

Asked if Amesbury was in any danger of reneging on its pension promises, Kezer said the city remains on stable financial ground. So long as Amesbury remains financially strong and stable, there is no concern of meeting its current pension obligations, Kezer said.

Pensions for public employees are funded by three sources — contributions by employees and by the municipality that employs them, and by the returns on those funds when they are invested.

In 2012, Amesbury appropriated $3.1 million toward retirement pensions, a figure that has swayed little since 2008. Between 2005 and 2008, that figure fluctuated between $2 million and $2.7 million. Its number of retirees has remained relatively steady since 1999 with 223 reported in 2012, up from 194 in 1999, according to the Pioneer Institute.

Newburyport contributed $4 million for its 217 retirees in 2012, while in 2005 it appropriated $3.1 million for a reported 213 employees and retirees.

In 2012, Essex Regional appropriated $23 million and reported 1,624 retirees, according to the institute.

Newburyport Mayor Donna Holaday agreed the city’s unfunded liability was an area of concern, but added cuts in local aid and the need to fund existing services have made it more challenging than past years to set aside money to the city’s retirement pension system.

“We’re playing catchup,” Holaday said.

City financial officials, she said, would continue to look at ways of maximizing pension contributions while not turning away from its other obligations.

Greater Newburyport wasn’t alone in receiving bad marks. Peabody, Salem and Swampscott have less than half of the costs covered, while Danvers and Beverly are just over 50 percent. The poor grades don’t stop at the North Shore. Nearly half of the state’s pension boards — 47 out of 105 — received an F for their low funding ratios, said Iliya Atanasov, a senior fellow at the Pioneer Institute and a co-author of the report.

The Pioneer Institute, which advocates for limited government, created a website, MassPensions, that includes information on the state’s retirement boards and the grades that it assigned for each. Atanasov said the project is an effort to bring transparency and public attention to the state pension system.

Atanasov said communities are falling short in their pension obligations for many reasons, including a failure to put aside enough money each year to cover future costs, and expecting a higher rate of return on investments than they actually got.

Atanasov said communities whose pensions are underfunded must come up with a “rigorous schedule” to fund them.

“After you pay the bills for basics like schools and infrastructure, that should be one of the top priorities,” he said.

Salem News writer Paul Leighton contributed to this report.