Underpayments, buyouts leave Berlin’s pension system 13% funded

Underpayments, buyouts leave Berlin’s pension system 13% funded

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BERLIN — The town’s pension fund was nearly empty at the close of the last fiscal year due to years of inadequate funding leaving the fund with barely enough to cover payouts as employees retire.

A $1.6 million payment in the current budget shored up a system that was left with $68,000 at the end of last fiscal year, which closed in June 2018, however, the fund remains only 13 percent funded.

Mayor Mark Kaczynski and Board of Finance Chairperson Sam Lomaglio said they are working on a deal to cut roughly $400,000 from the pension contribution in the proposed budget, shifting those funds to the general fund budget to offset the need for a tax increase. 

The $1.2 million pension contribution would be less than the actuaries’ recommendation, but  Kaczynskibelieves $1 million should cover anticipated buyouts next year. The remaining $200,000 would go towards annuity payments.

“It’s a way we can reduce the mill rate and not really hurt anything,” Kaczynski said. “It’s not an ideal situation, but we still have money set aside for the pension fund.”

The council is expected to vote on the Board of Finance’s budget proposal by Wednesday night. 

The payment would come from the budget reserve fund, essentially the rainy day fund, allowing the town to cover buyouts anticipated for this year without having to raise taxes or push services out of the budget.

The majority of the annuity payment makes up for years of underfunding. Berlin only began contributing the recommended amount  2018, and often paid between nothing and $700,000 in prior years, Finance Director Kevin Delaney said. 

He also said the town would only need to pay $100,000 next year if it had been making the recommended payments annually. 

"This has been built up over many years and so part of it is also, for lack of a better word, fairness. Taxpayers today, it could be residents or businesses, taxpayers today are being asked to pay on a liability that's been built up over many, many years," he said. "It's probably not fair to burden today's taxpayer with all of that cost if we can avoid it.”

Delaney said if the employees remaining on the plan all took buyouts this year the town would face a $7 million payout, however, he only anticipates two to three of the 13 eligible members to retire in 2019. For around five years, every member of the plan who has retired has taken a lump sum payout rather than ongoing annuity payments, which has drained an already starved fund.

Berlin Police Sgt. Mark Soneson, who is the vice president of the local police union, said employees prefer the buyout over an annuity largely because it allows for more flexible estate planning and can accommodate for inflation if a portion of the money is invested. Of the 13 remaining members of the pension plan eligible for a buyout, 11 are in the police department.

Soneson also noted that the annuity does not account for inflation. He pointed to one officer who retired in 1979 and received around $6,000 a year, which would be worth $35,602.25 today, according to the Bureau of Labor Statistics, until his death in 2013.

There’s no concern that the town won’t honor its obligations, Soneson said, however, years of not setting aside money have placed today’s taxpayers in an unfair bind.

“They kicked the can down the road,” he said. “What would bother me is...people who live here now are paying for a tax break essentially that people 20 years ago got.”


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