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Date: 9/28/2022
SPRINGFIELD – Labeled in the past as “the monster under the bed of municipal government” by City Council President Jesse Lederman, the city’s unfunded employee pension obligations continue to be a focal point of the council and city leadership. During a Sept. 13 Audit Subcommittee meeting, the council learned that the city is making steady progress with the unfunded liability.
Background
The $900 million in unfunded pensions for retirees continue to be a common concern among city leaders. Ward 7 City Councilor Timothy Allen has made the issue a focal point during his 12 years in office, including his service on the pension bond analysis process as a council representative. He expressed hope that the city continues to make progress on addressing the fund.
“We didn’t create the problem, but we have to fix it … We’ve made consistently good decisions on the pensions during the 12 years I’ve been on the council. We’ve gone from 26 percent funded to 35 percent funded, but we have to keep on that path of pension responsibility,” said Allen in an April 25 City Council meeting.
In April, Chief Administrative and Financial Officer TJ Plante presented a $755 million bond authorization request to the council. He explained that the request would allow the city to utilize either the full bond, part of the bond or none of the bond based on how interest rates changed to pay off pension expenses.
The council discussed the matter over the course of two meetings and ultimately approved the authorization in a 10-2 vote during their May 2 meeting. Despite the approval, Allen later revealed in June that the city ultimately did not utilize the bond due to unfavorable interest rate conditions.
Audit Subcommittee
During the Audit Subcommittee meeting, Powers & Sullivan Auditor Michael Nelligan showcased an update on the pension fund. Nelligan shared that the retirement pension is being funded “more aggressively,” with the city now reaching 39 percent funded for the obligation.
Allen expressed encouragement with the bond payment progress.
“That’s far and away the highest we’ve been. We were trying to get 30, for the longest time we were at 26, so that’s good news,” said Allen. The progress has allowed the city to decrease the $900 million pension liability by roughly $100 million.
Addressing the unpaid fund comes with increased costs. Nelligan shared that city’s funding schedule increases by 9 percent annually, which will lead to the yearly expenses dedicated toward the pension rising as high as $120 million by 2030.
The city spent $56.1 million toward the unpaid pensions this year – an increase from the $51.5 million paid in 2021. Nelligan expects the city’s pension payment to increase to $61.1 million next year.
Despite the rises in expenses, Nelligan stressed that the council and city leadership remain attentive with the funding schedule. The city envisions paying off the liability by 2033 based on their current payment plan. Springfield is required to pay off all unpaid pension liabilities by 2040 as a part of a state mandate, according to Nelligan.
“Our recommendation is to keep an eye on that funding schedule and try to find a way to fund that … it’s going to be tough to achieve the whole thing by 2034, but we’ll see what happens. I think [the city] can get there,” said Nelligan.