Beaulieu Urges Council to Right Pension Issue

The town has a looming pension issue that must be addressed soon, according to Town Councilor Cindy Beaulieu.

Specifically, Beaulieu said at the Town Council’s meeting on Monday that the town employee pension fund is currently underfunded by $500,000, despite the town making its annual contributions.

The pension fund is underfunded, Beaulieu said, because the pension plan assumed an 8 percent return on future earnings. That expectation, which was widely accepted by municipalities across the state for years, is no longer the standard applied by actuaries, Beaulieu said.

Because of a weakening of the economy, the rate of returns has been lowered by nearly every town with a AAA bond rating from 8 percent to between 6 and 7.75 percent. South Windsor has a Aa2 bond rating. The higher the bond rating the less expensive it is for towns to borrow money. 

The lower the rate of return on investments, the higher the contribution a municipality must make to keep the pension plan fully funded, Beaulieu said.

Beaulieu, whose area of professional expertise is in pensions, said that the time has come for the town to lower its discount rate to 7.5 percent.

“That’s what’s tolerable,” Beaulieu said.

Her plan calls for the town to make four annual $125,000 payments into the pension fund to bring it back to fully funded. The Board of Education’s pension plan, Beaulieu said, is in “relatively good shape.”

Several Republicans, including Beaulieu, backed a measure to include the first $125,000 payment to the pension fund during budget discussions for 2013-14, but that proposed payment was eventually cut.

Town Councilor Kevin McCann said that the council should heed Beaulieu’s advice.