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Home My WebLink About2019-09-11 Finance Committee Packet July 9, 2019 Reading Contributory Retirement Board 16 Lowell Street Reading, MA 01867 Dear Members of the Board: As requested, we have analyzed the impact on the Reading and funding schedule as a result of adoption of certain local options. We used the data and results of the most recently completed January 1, 2019 valuation to develop the change in the accrued liability and normal cost and the resulting impact on the funding schedule, using an investment return rate of 7½%. The results of our analysis follow. A local option is available to raise the maximum base amount on which the annual cost-of-living allowance up to $12,000. The Board may increase the maximum base amount in multiples of $1,000. Increase the COLA Base from $12,000 to $13,000 The normal cost and accrued liability as a result of increasing the maximum base amount from $12,000 to $13,000 are expected to increase by $17,200 and $827,200, respectively. The impact in the appropriations for fiscal year 2021 is an increase of $135,000. Increase the COLA Base from $12,000 to $14,000 The normal cost and accrued liability as a result of increasing the maximum base amount from $12,000 to $14,000 are expected to increase by $34,100 and $1,637,800, respectively. The impact in the appropriations for fiscal year 2021 is an increase of $267,300. We have attached proposed funding schedule M ($13,000) and N ($14,000). Please let me know if you have any questions relating to this material. Sincerely, Linda L. Bournival, FSA, EA Consulting Actuary Reading Contributory Retirement System Funding Schedule M 30-Year Forecast of Annual Appropriations $13,000 COLA Base Based on Results of January 1, 2019 Valuation Increase Unfunded Fiscal Amortization Amortization Amortization Amortization Over Actuarial Year Employer Payment of Payment ofPayment ofPayment ofTotal Employer Prior Accrued EndingNormal CostUAL ERI 2002ERI 2003ERI 2010CostYear2017 ScheduleLiability 2020$1,886,990$4,395,952$0$0$0$6,282,942$6,282,942$46,560,955 20211,962,469 5,791,847 - - - 7,754,31623.42% 6,618,532 45,576,141 20222,040,968 6,101,064 - - - 8,142,0325.00% 6,972,047 43,095,871 20232,122,607 6,426,527 - - - 8,549,1345.00% 7,344,445 40,114,671 20242,207,511 6,769,080 - - - 8,976,5915.00% 7,736,734 36,578,425 20252,295,812 7,129,609 - - - 9,425,4215.00% 8,149,975 32,428,102 20262,387,644 7,509,048 - - - 9,896,6925.00% 8,585,291 27,599,337 20272,483,149 7,908,378 - - - 10,391,527 5.00% 9,043,857 22,021,990 20282,582,475 8,328,628 - - - 10,911,103 5.00% 9,526,916 15,619,660 20292,685,774 8,770,884 - - - 11,456,658 5.00% 10,035,771 8,309,167 20302,793,205 - - - - 2,793,205-75.62% 2,360,394 - 20312,904,932 - - - - 2,904,9324.00% 2,466,612 - 20323,021,129 - - - - 3,021,1294.00% 2,577,610 - 20333,141,974 - - - - 3,141,9744.00% 2,693,602 - 20343,267,653 - - - - 3,267,6534.00% 2,814,814 - 20353,398,360 - - - - 3,398,3604.00% 2,941,482 - 20363,534,294 - - - - 3,534,2944.00% 3,073,848 - 20373,675,666 - - - - 3,675,6664.00% 3,212,171 - 20383,822,693 - - - - 3,822,6934.00% 3,356,719 - 20393,975,600 - - - - 3,975,6004.00% 3,507,771 - 20404,134,624 - - - - 4,134,6244.00% 3,665,621 - 20414,300,009 - - - - 4,300,0094.00% 3,830,575 - 20424,472,010 - - - - 4,472,0104.00% 4,002,950 - 20434,650,890 - - - - 4,650,8904.00% 4,183,084 - 20444,836,925 - - - - 4,836,9254.00% 4,371,323 - 20455,030,402 - - - - 5,030,4024.00% 4,568,032 - 20465,231,618 - - - - 5,231,6184.00% 4,773,594 - 20475,440,882 - - - - 5,440,8824.00% 4,988,405 - 20485,658,517 - - - - 5,658,5174.00% 5,212,883 - 20495,884,858 - - - - 5,884,8584.00% 5,447,463 - Schedule MBaselineIncrease Employer Normal Cost as of January 1, 2019: 1,787,657 1,417,593 370,064 Administrative Expenses: 200,000 175,000 Unfunded Actuarial Accrued Liability (UAL): 46,560,955 45,223,571 1,337,384 Investment Return Rate: 7.50%7.65% Amortization Payments Increase Annually: 4.50%4.50% Limit on Annual Increase: 5% per yearNone Fully Funded in Fiscal Year: 20292029 COLA Base: 13,000 12,000 7/9/2019 Reading Contributory Retirement System Funding Schedule N 30-Year Forecast of Annual Appropriations $14,000 COLA Base Based on Results of January 1, 2019 Valuation Increase Unfunded Fiscal Amortization Amortization Amortization Amortization Over Actuarial Year Employer Payment of Payment ofPayment ofPayment ofTotal Employer Prior Accrued EndingNormal CostUAL ERI 2002ERI 2003ERI 2010CostYear2017 ScheduleLiability 2020$1,904,830$4,378,112$0$0$0$6,282,942$6,282,942$47,371,512 20211,981,023 5,905,595 - - - 7,886,61825.52% 6,618,532 46,465,658 20222,060,264 6,220,685 - - - 8,280,9495.00% 6,972,047 43,936,259 20232,142,674 6,552,322 - - - 8,694,9965.00% 7,344,445 40,896,265 20242,228,381 6,901,365 - - - 9,129,7465.00% 7,736,734 37,290,528 20252,317,516 7,268,717 - - - 9,586,2335.00% 8,149,975 33,058,891 20262,410,217 7,655,328 - - - 10,065,545 5.00% 8,585,291 28,135,766 20272,506,626 8,062,196 - - - 10,568,822 5.00% 9,043,857 22,449,678 20282,606,891 8,490,372 - - - 11,097,263 5.00% 9,526,916 15,922,774 20292,711,166 8,940,960 - - - 11,652,126 5.00% 10,035,771 8,470,294 20302,819,613 - - - - 2,819,613-75.80% 2,360,394 - 20312,932,397 - - - - 2,932,3974.00% 2,466,612 - 20323,049,693 - - - - 3,049,6934.00% 2,577,610 - 20333,171,680 - - - - 3,171,6804.00% 2,693,602 - 20343,298,548 - - - - 3,298,5484.00% 2,814,814 - 20353,430,490 - - - - 3,430,4904.00% 2,941,482 - 20363,567,709 - - - - 3,567,7094.00% 3,073,848 - 20373,710,418 - - - - 3,710,4184.00% 3,212,171 - 20383,858,835 - - - - 3,858,8354.00% 3,356,719 - 20394,013,188 - - - - 4,013,1884.00% 3,507,771 - 20404,173,715 - - - - 4,173,7154.00% 3,665,621 - 20414,340,664 - - - - 4,340,6644.00% 3,830,575 - 20424,514,291 - - - - 4,514,2914.00% 4,002,950 - 20434,694,863 - - - - 4,694,8634.00% 4,183,084 - 20444,882,657 - - - - 4,882,6574.00% 4,371,323 - 20455,077,964 - - - - 5,077,9644.00% 4,568,032 - 20465,281,083 - - - - 5,281,0834.00% 4,773,594 - 20475,492,326 - - - - 5,492,3264.00% 4,988,405 - 20485,712,019 - - - - 5,712,0194.00% 5,212,883 - 20495,940,499 - - - - 5,940,4994.00% 5,447,463 - Schedule NBaselineIncrease Employer Normal Cost as of January 1, 2019: 1,804,558 1,417,593 386,965 Administrative Expenses: 200,000 175,000 Unfunded Actuarial Accrued Liability (UAL): 47,371,512 45,223,571 2,147,941 Investment Return Rate: 7.50%7.65% Amortization Payments Increase Annually: 4.50%4.50% Limit on Annual Increase: 5% per yearNone Fully Funded in Fiscal Year: 20292029 COLA Base: 14,000 12,000 7/9/2019 Reading Contributory Retirement System Funding Schedule K 30-Year Forecast of Annual Appropriations 5% Limit per year (except Year 1) Based on Results of January 1, 2019 Valuation Increase Unfunded Fiscal Amortization Amortization Amortization Amortization Over Actuarial Year Employer Payment of Payment ofPayment ofPayment ofTotal Employer Prior Accrued EndingNormal CostUAL ERI 2002ERI 2003ERI 2010CostYear2017 ScheduleLiability 2020$1,868,817$4,414,125$0$0$0$6,282,942$6,282,942$45,733,731 20211,943,569 5,675,763 - - - 7,619,33221.27% 6,618,532 44,668,368 20222,021,312 5,978,987 - - - 8,000,2995.00% 6,972,047 42,238,236 20232,102,164 6,298,150 - - - 8,400,3145.00% 7,344,445 39,317,037 20242,186,250 6,634,080 - - - 8,820,3305.00% 7,736,734 35,851,709 20252,273,701 6,987,646 - - - 9,261,3475.00% 8,149,975 31,784,367 20262,364,648 7,359,766 - - - 9,724,4145.00% 8,585,291 27,051,899 20272,459,234 7,751,401 - - - 10,210,635 5.00% 9,043,857 21,585,525 20282,557,604 8,163,563 - - - 10,721,167 5.00% 9,526,916 15,310,327 20292,659,907 8,597,318 - - - 11,257,225 5.00% 10,035,771 8,144,739 20302,766,304 - - - - 2,766,304-75.43% 2,360,394 - 20312,876,956 - - - - 2,876,9564.00% 2,466,612 - 20322,992,033 - - - - 2,992,0334.00% 2,577,610 - 20333,111,714 - - - - 3,111,7144.00% 2,693,602 - 20343,236,183 - - - - 3,236,1834.00% 2,814,814 - 20353,365,630 - - - - 3,365,6304.00% 2,941,482 - 20363,500,255 - - - - 3,500,2554.00% 3,073,848 - 20373,640,265 - - - - 3,640,2654.00% 3,212,171 - 20383,785,875 - - - - 3,785,8754.00% 3,356,719 - 20393,937,310 - - - - 3,937,3104.00% 3,507,771 - 20404,094,802 - - - - 4,094,8024.00% 3,665,621 - 20414,258,594 - - - - 4,258,5944.00% 3,830,575 - 20424,428,938 - - - - 4,428,9384.00% 4,002,950 - 20434,606,096 - - - - 4,606,0964.00% 4,183,084 - 20444,790,340 - - - - 4,790,3404.00% 4,371,323 - 20454,981,954 - - - - 4,981,9544.00% 4,568,032 - 20465,181,232 - - - - 5,181,2324.00% 4,773,594 - 20475,388,480 - - - - 5,388,4804.00% 4,988,405 - 20485,604,020 - - - - 5,604,0204.00% 5,212,883 - 20495,828,181 - - - - 5,828,1814.00% 5,447,463 - Schedule KBaselineIncrease Employer Normal Cost as of January 1, 2019: 1,770,441 1,417,593 352,848 Administrative Expenses: 200,000 175,000 Unfunded Actuarial Accrued Liability (UAL): 45,733,731 45,223,571 510,160 Investment Return Rate: 7.50%7.65% Amortization Payments Increase Annually: 4.50%4.50% Limit on Annual Increase: 5% per yearNone Fully Funded in Fiscal Year: 20292029 COLA Base: 12,00012,000 7/8/2019 Town of Reading Meeting Minutes 2016-09-22 LAG Board -Committee -Commission -Council: Finance Committee Date: 2019-07-31Time: 7:30PM Building: Reading Town Hall Location: Conference Room Address: 16 Lowell StreetSession: Open Session Purpose: General BusinessVersion: Draft Attendees:Members -Present: Chair Eric Burkhart, Dan Dewar, Edward Ross, Sean Jacobs, Shawn Brandt, Andrew Mclaughlan, Paula Perry, Karen Herrick, Marc Moll Members -Not Present: Others Present: Town Accountant, Sharon Angstrom; Town Treasurer, Endri Kume Minutes Respectfully Submitted By:Jacquelyn LaVerde Topics of Discussion: Chair Eric Burkhart called the meeting to order at 7:31pm. Reorganization Mr. Burkhart welcomed nominations for Chair. On a nominationby Ms. Perry, seconded by Ms. Herrick, the Finance Committee voted to elect Eric Burkhart as Chair by a vote of 8-0-0. Mr. Burkhart welcomed nominations for Vice Chair. On a nomination by Mr. Brandt, seconded by Ms. Herrick, the Finance Committee voted to elect Paula Perry to Vice Chair by a vote of 8-0-0. Liaisons The Committee discussed and assigned members as liaisons to Town departments, boards, and committees. Marc Moll arrived at 7:43pm. Eric Burkhart: Audit Committee and Select Board Shawn Brandt: Select Board and Public Services Dan Dewar: Administrative Services and Permanent Building Committee Karen Herrick: Public Safety, Finance, and RMLD Sean Jacobs: RMLD and Library/Trustees Andrew: Schools/School Committee, Permanent Building Committee, and RMLD Marc Moll: Select Board and Public Works Paula Perry: Schools/School Committee, Public Services, and Facilities Ed Ross: Schools/School Committee and Audit Committee Page | 1 OPEB and Pension Overview Town Accountant, Sharon Angstrom, was present to provide an overview of Pension and Other Post-Employment Benefits (OPEB) liabilities. Pensions in the past were pay-as-you- go and employees paid very low percentages, as low as 5%, to cover pensions. Over time, this accumulated a lot of liability and the state then mandated that municipalities must fully fund the liabilities by 2040. Actuarial evaluations are done every two years. Reading is ahead of schedule and is projected to be fully funded by 2029. Currently, employees are required to contribute 9% of their salaries, plus 2% over $30,000, which means employees should fully fund their own retirements going forward, with few exceptions, such as disability retirements. Employees with jobs considered to be more hazardous, such as Police, Fire, and RMLD, may cover most, but not all of their pensions because they are allowed to retire at 55, instead of 60. The pension retirement investment trust is used by the state to fund pensions. The state has access to investments that yield a high rate of return that others do not have access to due to the amount of money needed to contribute. The annual report from the Public Employees Retirement Administration Commission (PERAC) provides annual reports, which show the funded ratios and investment returns. Mr. Moll asked if these assets have to be with the state and expressed concern about the seeking of returns. Ms. Angstrom explained that they do not have to be managed by the state, but it is a good option for municipalities because it is a large portfolio managed by people who do this for a living. The Town is trying to manage its own investments over time and is using FIA as a consultant. The Town does not want to be too risky with its investments as other towns are not as vested as Reading. Interaction with FIA over the past year has been mostly in planning stages, and they just recently pulled money out to invest. Once the pension liability is fully funded, there will be a sharp drop in assessment and the plan is to redirect those funds toward OPEB liabilities. Mr. Ross asked if there would be an advantage to extending the timeline and if there might be other ways to allocate funds and meet the liability in 2031. Ms. Angstrom explained that it is a tough process, and once a certain dollar amount is contributed, that dollar amount can never decrease. The Town is trying to get the liability fully funded so it can shift to OPEB funding. Though the actuary can explore different scenarios. The current cost of living adjustment (COLA) for retirees is 3% up to $12,000, which has not changed since 1988. At the November Town Meeting, the Retirement Board will propose to increase the amount to $14,000, as other communities have done. That will increase the total liability by approximately $1.8 million. The state does not yet mandate that municipalities fund insurance), but it is expected to become mandated at some point in the future. total OPEB liability is just over $68 million, and is currently 6.8% funded. The pension state. However, teacher retirees do receive their health insurance benefits from the Town. Chapter 30 section 20 was accepted at Town Meeting to set up a trust, and once the Select Board approves the trust document, OPEB funds can be invested and get better returns. Free Cash and Fiscal Sustainability Ms. Angstrom noted that the Town has made steady strides in growing free cash over the last ten years. Regeneration of free cash can be done by either collecting more revenues than projected, or spending less on expenses than budgeted. FY19 started out with just over $11 million in certified free cash. Free cash for the end of FY19 is projected to be approximately $13.844 million. Mr. Brandt noted that the projected free cash balance is more than double what the Finance Committee policy calls for. Residents feel that free cash is high. Factors of regeneration in recent years include higher excise taxes, unspent override funds, and a natural lag in Page | 2 staffing. He suggested taking a chunk of money from free cash and creating a fiscal sustainability fund. When establishing the budget in recent years, it was mentioned that programs that would have medium to long-term benefits are tabled to balance the current -day kindergarten, which may help students thrive later; additional counseling support, which may decrease dependency on special education later; or hiring a grant writer, someone who specializes in applying for grant funds. A fiscal sustainability fund would give such programs the funding to get started, and could be re- evaluated to determine whether the funds should be renewed. The focus would be to spend the money on programs now that will save money in the future. The Committee discussed the idea and were in favor of exploring it further with input from the Town Manager and Superintendent of Schools. Further discussion will continue at the next meeting. Mr. Moll left the meeting at 9:35pm. Town Meeting Instructional Motion There was an instructional motion from Town Meeting requesting that FINCOM review unused debt and develop a policy on how to handle it. Ms. Angstrom stated that she reached out to other communities asking whether they had such a policy, but Stoughton was the only other community to respond that they had one. Reading only has two outstanding debt authorizations: one for MWRA for $460,000, which will be rescinded at the November Town Meeting; and one for the Birch Meadow lighting project for $900,000. The lighting project was put out to bid, but the cost exceeded the amount authorized. Due to poor timing and a potential override, the project was tabled. The amount was not rescinded because rescinding it would mean that the project is never going to happen, but the Town still plans to replace the lights eventually. Because the Committee did not have the exact instructional motion available, they opted to continue the discussion at their next meeting. Minutes On a motion by Mr. Brandt, seconded by Mr. Ross, the Finance Committee approved the minutes of July 1, 2019 by a vote of 8-0-0. On a motion by Ms. Herrick, seconded by Mr. Brandt, the Finance Committee voted to adjourn at 9:54pm by a vote of 8-0-0. Page | 3