SALISBURY — Selectmen in Salisbury are joining those in Rowley, Hamilton, Ipswich and Manchester in asking the Essex Regional Retirement Board to transfer their pension funds to the state retirement system.
Salisbury's selectmen voted to take the advice of Town Manager Neil Harrington to request the ERRB send the money to the state pension fund, in effect a vote of no confidence in the ERRB.
The move is the result of the growing controversy over the ERRB's practices and performance after it posted a 33 percent loss in its pension fund in 2008, the worst performance of any of the more than 100 public pension programs in the state. Employees of seven local towns — Salisbury, Merrimac, Georgetown, Groveland, Rowley, Newbury and West Newbury — and two school districts, Pentucket and Triton, have their pensions invested in the ERRB.
"I believe these investments should go to the state," Harrington told selectmen at their Monday night meeting. "I would recommend we do that. I don't see why we wouldn't join with the other communities."
Harrington said ERRB officials requested the housing authorities, regional school boards and 19 towns that invest their employees' retirement funds with the board to respond by Monday on the question of sending the county's fund to the state pension program for investment. But, Harrington cautioned, to the best of his knowledge, it still requires a vote of the ERRB to make it happen.
Under state law, when any public retirement program's funded ratio falls below 65 percent, money must be sent to the state for investment, Harrington said. Currently the ERRB's funded ratio is at 67 percent, he said. A fully funded pension fund, or one with a 100 percent funded ratio, is one in which the assets of the system are sufficient to pay the anticipated long-term retirement costs of currently active and retired employees, he said.
But waiting to see what the results of 2008's 33 percent loss has on the ERRB's funded ratio could be risky, Harrington said, because the next actuarial study won't be done until 2010. That could allow more time for the ERRB to make more bad decisions, causing even bigger losses the towns will have to make up, he said.
Although the state's pension fund lost 29 percent in 2008, as did most pension funds due to the collapse of the stock and mortgage markets, the state's funding ratio was 89.4 percent, Harrington said.
Harrington said that at a meeting in Ipswich earlier in June of ERRB town member officials, there was a consensus the retirement board members were more concerned with making decisions to benefit municipal employees than with the communities that paid the bills.
Communication between the ERRB and its contributing entities is very poor, and its abysmal performance has lost it the faith and trust of its contributors, he said.
Although most expected pension programs to be hard hit universally in 2008 because of the economic recession, the ERRB's poor investment management was coupled with other financially imprudent decisions that angered communities, he said. For example, the ERRB voted 5.8 percent raises for its employees, for which contributing communities suffering cutbacks and layoffs had to pick up the tab.
Harrington said when the 2010 actuarial study is done and the losses recorded by the ERRB are calculated, its member towns, schools and housing authorities are expected to be hit with a 40 to 45 percent increase in 2012 to make up for those losses, so retirees can get their expected pensions.
For Salisbury, which will contribute more than $700,000 to the pension fund in the next fiscal year, a 40 percent increase in 2012 could mean the town has to come up with an additional $300,000 at the taxpayers' expense, Harrington said.
Selectman Jerry Klima said fellow selectmen in other towns he meets with regularly haven't had many positive comments about the ERRB or its relationship or communications with its contributing communities. Concerns with the ERRB, including its increasing benefits without the consent of its towns, had been at a "low boil" before its 33 percent loss was known, Klima said.
"Now, there's a sense of frustration, and it's boiled over," Klima said. "I think we need to move this (pension money) to a more professionally managed (retirement system), like the state, one that's more diversified."
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