Letter: Time for intelligent discussion about pensions
To the Editor:
It is time to have an intelligent discussion about pensions. Mr. Herbst, in his State of the Town address, and Town Treasurer John Ponzio in a letter to the editor, failed to give it straight to the residents of Trumbull, but instead played fast and loose with the facts and engaged in political double talk. Their comments do not give our citizens the clear insight they deserve regarding the current pension funding situation.
This is the first of two letters I hope will accomplish what Mr. Herbst and Mr. Ponzio failed to do, have a fact-based, intelligent discussion about pension funding and solutions.
Today, Trumbull pensions are in trouble. First, it was easy for politicians to underfund the pension funds primarily to keep taxes artificially low. This happened under previous administrations and has continued under the current administration. On top of the political issues, the situation was compounded by the great recession, the effects of which we are still experiencing. The fact that our town pension had a funding ratio of approximately 32.5% and later fell to 27% was due to these two factors, political expediency and a bad economy. While our town pension is now funded at approximately 33%, due in large part to the recovery in the markets, it is still below previous funding levels and dangerously low.
What does this mean?
To assess the health of a pension fund you need to look at two factors, the actuarially recommended contribution (ARC) and the funding ratio. ARC is the amount of money an actuary recommends that the town add to the pension fund each year. The funding ratio is the amount of assets in the plan versus expected benefits to be paid over time.
A healthy plan meets ARC requirements every year and has a funding ratio of 100%. That means there are sufficient assets in the plan to meet all anticipated obligations and we are putting sufficient funds in each year to keep it that way.
Trumbull funds two pension plans, the town plan and the police plan. So, there are four factors to consider, the ARC for the town plan, the ARC for the police plan, the funding ratio for the town plan and the funding ratio for the police plan.
In the current budget proposed by Mr. Herbst, the police pension DOES NOT MEET the ARC requirement. The police pension funding ratio was about 74%. While Mr. Herbst and Mr. Ponzio talk about the importance of meeting ARC requirements, they are not doing it for the police plan.
For the town pension we ARE MEETING the ARC requirement for the second year. However, the Town Plan Funding Ratio is only a paltry and dangerously low 33%. These facts show that both our plans remain troubled. In three of the four factors we fall short.