your service and for those that are viewing from the television audience thank you as well for your service to our country we really get only time have tom leave to discussions time if you like since like so many mail which he said this is the first time that the ret jim is also by the way workers rather there is a statutory guarantee a retirement contract if you will that's provided massachusetts general laws chapter thirty two and chapter thirty two provides the public employee retirement plan it defines the benefits contribution requirements coming investment structure for all of the one hundred four massachusetts retirement systems retirement put members the five of us here today unlike many other elected point public officials through the retirement system on three sources employee contributions employer contributions and returns on the investment of those contributions now a recent study has reported that in massachusetts since one nine hundred ninety three thirty two point six five percent of the pension fund receipts come from the employer contributions so a big chunk of our money twenty percent come from employee contributions and forty seven percent from investment earnings that's what makes up our assets if you will in the retirement system the payment of employer contributions portion of the pension plan is the topic of our discussion today to nine hundred eighty eight retirement appropriations we want to pay as you go basis as employees retired the employer would begin to contribute towards every time of benefit there were no requirements that any payment be made to existing a future pension obligations and at times the excess investment returns received from the belmont from every time systems investments would be used for the town's general operating revenue so in the past when the board had a good units investments the excess earnings actually would be would be taken by the town and used for for its operations rather than being retained from the system all of this resulted in a large unfunded liability for the employers and the retirement systems kind of like what is being examined today with with reference to the retiree health insurance and one nine hundred eighty seven the legislature enacted statutes which required the time to be fully funded within forty years or at that time by two thousand and twenty eight following the wall street collapse and market the bottle into eight that funding requirement has been extended by the employee contributions to the retirement plan were steadily increased and i would point out that massachusetts public workers have some of the highest contribution rates in the country currently nine percent of salary plus an additional two percent on selling over thirty thousand dollars now the employers who are required to make scheduled payments to the unfunded liability based upon schedule valuation explore snapshots of the retirement system so what is the valuation every two years the law requires a study be conducted comparing the liabilities of the current and future retirement payments with the systems assets yes the employer employee contributions in return investments the valuation develops a normal cost which is a liability for the amounts expected to be earned in the current year discuss which means the expected annual payments to fully fund the belmont retirement system the funding schedule requires that each year a payment is made to reflect the employer's normal cost as well as a portion of remaining unfunded liability  schedule reason is revised every two years to update the asset liabilities amount so the last we have is two thousand and fourteen now we're reviewing the two thousand and sixteen valuation the funding schedule includes many actuarial  most important of which should be expected rate of investment return how well our investments are expected to do the mortality tables and that is how long the retired expected to live and expected salary increases for the town's police based upon the system's last valuation the belmore time system is currently scheduled to be fully funded by two thousand and twenty seven by which time the employer would be required to contribute only the normal cost the current funding schedule assumes a rate of investing return of seven point seven five  zero percent and a salary increase assumption of four point two five percent for public safety employees and three point seven five percent for other employees in a motel the table that i will have to defer to mr ali to explain as is done every year following the valuation of the time it will provides a copy to the town and receives feedback and suggestions prior to setting the funding schedule the board is sensitive to the town's financial situation and always has communicated with the t of selectmen and the warren committee although not in a forum such as this so what is taking place today and substance has been the same protocol followed since i have been a member of the retirement board what is different is the format and mechanics of the discussion in the past when faced with funding problems which have required sizeable increases to the town's contributions their time board has worked with the town to find ways to mitigate the impact of the appropriation and to allow the town to adequately plan it's budgets for example when a prior actuary recommended years ago that a seventeen percent increase the town's appropriation was required to account for investment losses every time a board in town officials agreed to the funding plan which  increase to be clear however the funding schedule is set by the retirement board subject to approval by the public employee retirement administration commission which is a state agency that oversees the operations of all retirement systems in massachusetts as we listen to mr riley review the valuation of funding schedules requested by the board and others i would respect the suggested we keep in mind that while adjustments to the funding schedule have been made in the past in belmont and elsewhere that long term  discipline and paying down the unfunded liability has been in should remain the hallmark of the retirement boy some of the issues before us involved in understanding of what the tradeoffs may be and extending the funding schedule what is the and the town are willing to absorb what direct and indirect impacts will extension have on future funding issues for the board in the town and on future generations so that's my summary and i thank you for indulging me and i like to hear from perhaps i'm a senior vice president an actuary consulting can we've been the actuaries for the retirement board since two thousand and fourteen so i'd like to give you a little background before we go through all of the what i'm going to go through all of the numbers on the screen  we met with the board in september and presented our preliminary evaluation results and prepared five schedules for the board at that point in time at that meeting in september we were asked to pair two additional schedules which we presented at their tobar meeting and then after the october meeting we were asked to present to prepare an all in those schedules are all summarized up there and after the october meeting were asked to prepare two additional schedules for this meeting so when we completed the two thousand and sixteen evaluation we reviewed the prior years experience and reviewed the assumptions prior to putting together our funding schedules the experience for the past two years was favorable resulting in a reduction of about four point three million dollars in the unfunded liability the assumption and i'm not going to go into any detail unless you further detail us you want me to the assumptions that we recommended the board look at were the investment return assumption and the mortality assumption the mortality assumption we made a recommendation that the board move from a static mortality table to one with a generational projection that better reflects future mortality improvement better anticipates future mortality improvement the change to the recommended table adds a little under three million dollars to the unfunded liability in addition to that change we recommended that the board review the investment return assumption based on the current asset allocation and expected returns by asset class and we provided schedules that were done at a seven and a half percent investment return and also at a seven and a quarter percent investment return the prior valuation had been at seven had been done at seven and three quarters percent so that was either twenty five or fifty basis point reduction roughly twenty five basis point  the assumed investment return increases the unfunded liability by about four million dollars so yes each twenty five ads ads for million so if you went all the way to seven and a quarter you'd be an eight million dollar increase so even just going to seven and a half along with a mortality change is going to result in a little bit more unfunded liability than was in interest of paid it in a change in the funding schedule so with that overview i want to summarize the and there is a logic to the numbering which i will review with you so that you can follow through with them afterwards the first column is the schedule from the prior evaluation report where you can see full funding through two thousand and twenty seven and the way you can tell full funding through two thousand and twenty seven is the next row twenty twenty eight shows a big reduction and that's because the unfunded liability is fully paid off and all you're left with is employer normal cost as tom referred to and that schedule the appropriation increases just under seven percent per year then there are a lot of ways to come up with a payment on the unfunded liability and with the prior valuation the board decided to smooth out the appropriations over the full schedule so we don't explicitly calculate a payment on the unfunded liability we say we want to fully fund by and twenty seven we want the appropriation to increase by the same uniform amount we kind of back into what that means for the payment on the unfunded liability and it was just under a seven percent payment so the schedules that we did for the september twenty seventh meeting there were five schedules three of them at seven and a half percent and those are the schedule ones too and the ones that are scheduled the ones at seven and a quarter percent are scheduled to begin with two so for the september meeting we did three schedules at seven and a half percent one a one b in one say all with different ending points of the immunization and then we did two schedules at seven and a quarter percent to weigh in to be with different ending amortization the ones that you see up there that you know one a one one a two and two a one where the ones requested at the september meeting that we presented in october and they were variations of those one day into a schedules the schedule ones are all at seven and a half schedule to those are all it seven and a quarter ok so let's that's the total appropriation the town is to make some of it funded by the entity enterprise funds so let's look at schedule one a seven and a half percent we maintain the same full funding date of two thousand and twenty seven as in the prior valu but there's a little bit more liability you have that has to be funded now so now the appropriation increases seven point nine percent instead of the six point nine seven percent in the prior valuation so this is all seven and a half still at seven yes yes yes in updating the mortality and if we maintain the same full funding date the appropriation has to increase almost eight percent compared to the seven percent in the prior evaluation so as an alternative we looked at pushing out that schedule one year to two thousand and twenty eight to show what the impact was on that will be increase in the appropriation that schedule and schedule one has a rate of increase in the appropriation of six point four are pushing that schedule out by one year is a pretty significant impact on that annual rate of increase from almost eight to six point four and now it's a rate of increase that's less than the prior valuation and  asked and i don't remember who made this request to push the schedule out to twenty thirty two a five year and that's a five year that's a five year extension in the schedule and that lowers the rate of increase in the overall appropriation to just under three percent with schedules that schedule a one  like your mortgage it's because you slow down the rate of payments that go into the retirement system and you have to make up that lost investment earnings in that last investment earnings are made up by paying for more years and the total dollars that get paid into the retirement system are larger those differences are shown at the bottom of the schedule so for example pushing the schedule out one year from one day to one b adds another three million and change in just total adding up just strictly adding up the payments but pushing it out five years had almost seventeen million dollars in extra payments into the retirement system for  look historically at what returns of band it's very sensitive very dependent on the period of time over which you look the last five years the assumption hasn't been met i don't know it but there are certain periods there are periods of time over which it has been met it really depends on whether you you know picking up or not that two thousand and eight investment performance the assumption is set on a forward looking basis looking at your asset allocation and expected returns for those asset classes those expected returns have definitely come down over the past couple of years because the expected return is based on your expectation of interest rates plus risk premiums added for each asset class and as interest rates of can doubt the expectations have come down so seven and a half percent is or is is in the range of a reasonable assumption as a seven and a quarter percent you know obviously you're more likely to make a seven and a quarter percent assumption with the same asset allocation than you are a seven and a half percent assumption but lowering the assumption that second time you know that's that additional twenty five basis points has a cost associated with it and you work with other communities would just return to the u c most of them there are a few outliers most of them are between seven and a half and seven and three quarters and tom and i we just  so the state actuary he had some statistics i think probably seventy five percent or so of the mass retirement systems are out seven and a half or seven and three quarters i want to say roughly you know split roughly between the two but i don't have the actual numbers in front of me so this is this is the this is the range of assumptions for the majority seven and a half to seven and three quarters of the state lowered their assumption to seven and a half percent this year ok but again years as twenty twenty seven a lot over in the twenty thirty to twenty thirty two range in a few beyond that nobody according to jim no i don't have any that the longest one i have i think is a twenty thirty six that i have that siegel works on i heard that time the meeting at seven and a quarter percent of our schedules to a into b to a is the is a twenty twenty seven schedule so now we have to absorb the additional increase in the cost of lowering the assumption a second time that has appropriation increases of nine percent those could be met it mitigated a little bit by pushing the funding schedule out to be pushes the schedule one year in the low is the nine percent increases to six point two percent in b is twenty twenty one twenty twenty eight twenty twenty i'm sorry two years we did two years twenty twenty nine and it lowers it to six point two percent one is twenty three to twenty thirty two is one  so those were the schedule that we prepared for the september meetings sort of straightforward schedules consistent with the approach used for the two thousand and fourteen valuation and at that meeting we were asked for prepare a couple of additional schedules which are inserted in here one a one one a two into a one and no schedules were keyed off of either the one day schedules or the two way schedules and they anticipated an extra one time additional appropriation in fiscal eighteen i think my understanding is you know based on some available free cash the one day one schedule assumes an extra five hundred thousand dollars contribution in addition to what was anticipated so if you look at one a one and compare it to one essay that extra five hundred thousand dollars one time but then built into the schedule upon which future million dollars in puts a million dollars in and that lowers the rate of increase to five point five five percent and i'll point out these are all still twenty twenty seven schedules so if you were to push them out you know one year you would then have lower increases than those six point eight five point six that you see up the interest and then we did a similar with similar approach with one of the seven and a quarter percent schedules we took scheduled to where which was a twenty twenty seven schedule it in the five hundred thousand dollars in fiscal seventeen maine as i said maintain the twenty twenty seven and that lowers the nine percent increase to an eight point two percent increase so you can see the impact of putting i upfront cash along with pushing out the schedule so i think that's a good summary of what the set of schedule shows you early retirement incentive and then their payments on the unfunded liability the reason i kept all the detail here is in addition to looking at an extension of the funding schedule and level you know what is ation payments of the unfunded liability we were asked to split out the town liability from the light in the water department liability we use the assumption in this if you want this approach we would suggest that we refined it a little bit further but we use the assumption consistent with some of the other spreadsheets that we had seen that aside ninety percent of the cost to the town in ten percent to the light in the water department how did you come up with the water i could understand like department somewhat segregate forty two but only because the normal cost of the what folks need to understand maybe maybe i needed to understand is that normal class continues because that's always going to be a payment but by the time yes it's just up by like twenty twenty eight you fully fund or then it drops down to another three million dollars number which is your normal cost but with the schedule shows and there's two of them there's a seven and a half percent and then there was a seven and a quarter percent schedule because that's what was requested so i'll just walk you through the seven and a half and then you can see with the seven and a photo  looks like and in just a minute but we took the total normal cost and we split it into the town in the light just as i said ninety to ninety percent town right percent for lighting water the e r i payments we looked up what employees those were attributable to and they are not attributable to any light or water as far as we could tell so that all all of the payments go on the town side the unfunded liability we split again into nine hundred ten and as requested we used a fifteen  enterprise funds and you'd be able to do that because three enterprise fundraiser will try to raise your children it's in order to do that so that's a philosophical discussion we need to have because those that are it's the same residents that are pain increased rates but that was the request that we made we made that request simply to for us to understand is that an approach that makes sense if you build a fence around the enterprise funds fully fund those by twenty incentive and they were they were available to be offered in two thousand and two two thousand and three thousand and ten the town only took advantage of them in two thousand and two and two thousand and three and those are paid off over fixed periods which are dollars since we're using level immunization payments there are very small increases in there in the appropriation here because the normal cost is increasing just a little bit so it stays in the ten million dollar range for ten years of the schedule going from ten point two million to ten point seven million over that first ten year period then when the light water department payments for the liability payments drop out the appropriation drops about a million dollars to that it's not segregate it's paper kind of that's that's fine in looking at it in the aggregate york york celebrating funding in the initial years here at about ten point two million dollars which interestingly enough is awfully close to that one a two schedule that had the that had the extra million dollars of what somebody called free cash in it i think that's the prose of the schedule as accelerates funding in the early early years it is a for a flat schedule but it's pushed out five years and that's a big extension in a for schedule to go from twenty twenty seven to twenty thirty two you know usually you see a one or maybe a two year extension in a funding stage or schedule unless you've had some that make it advantageous to keep your schedule to twenty thirty once you push it open twenty thirty then they would see other rules that you have to keep in mind about how that how the schedule can change going forward so twenty thirty is often a benchmark that the kitty now so we don't have those type of shocks in the future who knows if we have another two thousand and seven two thousand and eight and if we have no leeway now i don't know what kind of presentation to the board about the type of return they were using for brim and i believe it was under seven it was closer to the six range they are actually using but that's what the story behind the seven percent increase the jewel that you told in your introductory remarks just so we can focus on that and you have a better understanding of how we ended up with the schedule to begin with so historically we do these valuations every two years and prior to siegel coming on board we had another actuary who presented a valuation to us following the investment losses in two assets in two thousand and eight and the next funding schedule we were advised to to raise the appropriations to on the town to make up for those shock falls in the numbers were at that time ok thank you and so this highlights one of my concerns over the current funding schedule which jim spoke to and that is the ball the balloon aspect of the payments and we have a  fiscal year sixteen to twenty and one of the things that the board is working on is managing those budgets because we have a deficit of six million dollars projected by  then think it's fair to say that the board's discussions have been to kid that we are committed to reducing the return investment return number and we are also committed to changing the mortality table to a generational tape we appreciate i think it probably makes a lot of sense actually mr williams that when we refer to balloon payment can you be a little more specific because i'm looking at the funding schedules exists right now and it seems to be increasing every year or at a fixed percentage so where is the balloon payment you're referring to my missing  continues the way it is here in belmont we start to look at in our out years let's say nineteen maybe twenty twenty one are starting to reflect you know it's modeling clearly as you get further out you know the mileage model become softer through the numbers that that according to twenty twenty one we have a six million dollar deficit there that is a two point four million increase from where we are in twenty seventeen if we go to twenty twenty let's just go to twenty twenty seven that is calling for a fifteen point seven million payment against an eight million payment that we're making now in twenty twenty seven and we have a nine hundred million dollars deficit in our projection model so as david said as mark said our projection model is just a projection model but is it occurred to me that you know there are two risk in terms of managing the pension fund which you guys know a lot more about than i do  is funding and the other is a return and so we're close enough this year and twenty seventeen at eight point four million and you mentioned the rule that you can't have a lower payment after twenty thirty i thought that that was in effect already but my thinking was that if we're already paying eight point four two million let's see what we could do to get a straight line amortization within some reasonable extension of the maturity so that we can fix that payment and that does a couple of things for everybody number one we don't have to look for two million a year every year when we're doing the budget number two you know we have other issues and other claims on our our income and this makes it predictable when you're when you're running a pledge we know it's going to be  look at my schedule again i have it in here is ten point eight i think on the seven point two five or you do and it's ten point two on the seven point five and what that does for the town is it also introduces the discipline of making sure that that payment is there every year now that doesn't mean if the investment returns don't achieve seven point two five or seven point five that we won't have to look at this again two years and decide what to do but what it does mean is that the numbers not going to be as big because you know if as jim said if you start to put money in upfront things become more predictable but really desirable beat the issue that i see is that you're adding almost forty million dollars to the unfunded liability by going out to twenty thirty two well and i'm happy to talk about that too because the time is it for you because i see up here at six it's it's going to be looking at i'm looking at the schedule that was prepared for the board of the one c which added about seventeen million with a twenty thirty two schedule so for me the question about costs is if we were issuing a bond and paying seven and a half percent or seven and a quarter to a third party i understand cost but that's not what this is we're not issuing a bond as you obviously know this is a schedule that calculates normal cost for you finding employer funding and investment income and obviously if you look at it over a longer period of time the aggregate of those three numbers which is a mixture of years beyond twenty twenty or twenty thirty two you know to twenty forty two you would see all those numbers would be higher so i think you know as a metric and as as a tool for decision making that yes the numbers higher and we know why the numbers higher but it's not cost you know that's not what it is and if you if you have i thought and i can't speak for the retirement board but i thought that if you know if we can give you a more predictable name that we don't have to have an override for or that we don't have to cut services for in order to make the payment which would be disruptive to the and both sides if we could give you a predictable number then everybody knows ok this is the number that we have reserved for the pension fund year after year after year and we can work around that because it's it it's stable and it'll be stable for two years and then we have to come back and talk to you again but that time it'll be about investment return instead of funding because i don't see the idea of moving  beyond twenty thirty two two years from now as being viable you see that i mean i do but we we've heard the past that when we've extended the funding schedule again and in the past i should say that well this is it we're not going to extend this any than i can do any further and then one thing happens or another thing happens or funding shortfall occurs over here and next thing you know people knocking on our door saying gee we really need this financial relief extended funding schedule again and that's sort of the can down the road theory that many many object to including the next generation would what object to kicking the can down the road i understand that the need for predictability and the funny schedules that we have certainly lay o percentage increase and allow for appropriate budget planning where the revenue comes from of course is something that the board is sensitive to and and that's why we try to work with the with with the boy if this town wants to inject or infuse additional payments up front to the retirement system i'm sure my brother and sister board members would be more than welcome to take that money and put it to work on the investments but what we i don't sense a lot of support and when the board of pushing this thing out five years ok well let me continue then another thing that occurred to me is that we have enterprise funds and i'm on the  permanent audit committees that floyd is involved with and i'm very familiar with the light and the water company enterprise fund and i happen to know that the light company has eleven thousand customers not eight thousand five hundred which is our number for taxpayers and so as long as the normal pension cost in the unfunded pension liability is not being met what we're doing is we have these utility customers who are not paying full cost for their services and without getting into a deep discussion on that i simply recommended and projected what would happen if water and sewer were paying full cost what i call full cost which is in fact full cost and if the utility were paying the light utility was playing full cost now in my past experience and everybody brings their past experience to these jobs you can't really say ok you know you have to you have to fully fund your pension obligations at the light company and the water company next year you can't do that but ten years is not a bad number and for mark sammy we did agree our october twenty fifth meeting that we would extend that to fifteen years and not ten and then that didn't come into the schedules but i think it's ok i mean when we said we think him it was sort of what the twenty one you know we you all were concerned about happens i'm not worried about it's not a big deal but the point is that if you have an enterprise fund and people are not covering their utility costs either water sewage or light you know for me that's that's a problem because what that means is that the real estate tax payer ins up subsidizing the utility now there are different you know ideas about this but that's where i'm at and so in terms of thinking about the even though we asked for fifteen and you put ten i prefer ten what we're saying is you know for that portion of the pension fund we will keep them on the same schedule you see what i mean that was that was one thing we wanted to offer and then the other thing was the flat payment schedule so that everyone who works on town budgets everybody is a member of town meeting everybody who is a member of the warrant committee when we get to that year we know what that number is going to be based on the estimates that are provided by the actuary and that in a nutshell was the genesis of the proposal i made to the board of selectmen and why we we ask if you could consider that now you know there are other considerations that have been articulated maybe five years is too long in that's why i think why we're some to see see where we can go but that in a nutshell represents what i'm thinking about it and i think in a way the full cost utility allocation in ten years a flat line on the town schedule which then will not require us reasonably to go for another override for the pension or to try to fund it someplace else by cutting services you know is it's not a bad offer for your consideration i mean you can see the sense i'm not offering it to you in a deal i'm just saying you know here are the considerations and we would ask you to i'd ask you to consider that thank you and we will consider this you know the legislation is to eliminate the unfunded liability and and maintaining fiscal discipline and doing that i would say is is key cathy do you have any i any comments on mr williams as  in funding schedule one a one i just wanted to point out to both the public and the assemblage that if you see the unfunded actuarial accrued liability on the right hand side at ten million one which is about the amortization starts on what we're asking you to consider that that number starts to go down by about two and a half million and then the next year it goes down by over three know a three to four million drop in that unfunded liability at that funding level we're also we don't have the utility funding at risk because we're we're using the rates to do that and this is within the town's capability you know first you know to put it on the table really i mean this whole discussion is is we appreciate the give and take that the retirement board is having with the board of selectmen and the warrant committee understanding the pressures this discussion has on the municipal budget but really everything's advisory other than the decision of whether we should put cash up front from free cash that's a board of selectmen decision i think it's an interesting the rest of it is really a you know discussion and advisory to the retirement board so so i would offer the following observations ok number one extending the payment schedule you know as has you know made the observation really results and losses to the town and it's a loss as a two level number one loss of investment  return of the funds ok since since you'll be getting less money upfront ok that's less to invest and less of a return but also you know there's there's another hidden loss to the town the more we extend the payment schedule on pension liability the later we start finding our obligations on oprah bligh ability ok so that's another added cost to the town right now we have an aggressive pension liability schedule with the idea that after twenty twenty seven we'll start funding all pub liability and the more we extend our pension payment schedule then you know by default we're not funding all pub liability so so so based on those observations i i would at this point discourage an extension of the payment schedule i would certainly not extend beyond twenty thirty because we you know what i hear that's a new set of rules ok it's going to be more constricting on the town because it affects our ability to reexamine the annual payment we can't reduce it if we go beyond twenty thirty and my concern is also as was raised the effect it may have on rating agencies moody's as i look at the schedules that have been provided to us over the next two to three years you know whether we go under under a column one day or even one a one or one b over the next two to three years i don't see big changes you know and the financial pressures on the town really they start hitting in the later years you know two thousand and twenty two twenty three twenty four so so  that said you know my current thinking is you know maybe this is maybe we stick with our aggressive payment schedule for now this discussion is to be had again in two years ok by then we'd certainly you know we would have gotten over a very contentious presidential election and by then you know maybe we'll have more clearer vision you know the state of the economy in the united states the discussion we should have though as a board of selectmen is whether to take funds from free cash and you know make an upfront upfront cash payment and i don't know i do think it's a very interesting idea in the back of my mind right now is you know what i heard from our consultant is is that returns are expected to be last in the short term so i don't know if that's a discussion that you know that being the case is that a discussion we defer to two years from now as well when we have more information on you know investments so within the eighteen budget perhaps you know additional you know one time infusion of cash if we have it i don't know whether we do it now we're just in the early stages of that and clearly we see you know seek out the counsel of the school committee and the committee on those issues so that's one point you support that idea i actually do support extending the schedule beyond twenty twenty eight if in fact that makes sense that creates a more predictable payment stream although twenty thirty two i'm that two year period of time that creates a higher rate of return for us on assets they will be in a better position at that point i just i think twenty three two i think is a big jump of perhaps two to aggressive a job but extending the schedule to twenty thirty it's really would love to hear from our town calculation which new employees infer employees coming in to the system after april second two thousand and twelve the the goal of the estimate was six five to six million dollars across the commonwealth  haven't seen those changes significantly impact our evaluation yet but we do expect those changes to have an impact on the valuation going forward in essentially what they did was also they increase the normal retirement age and reduce the factor for early retirements meaning essentially people to work longer for for less money than older prior members in the system but at the same time it was an acting these benefit reforms they hundred seven time of boids were locked into granting a three percent cost of living increase based on the first twelve thousand dollars of retirees or beneficiaries allowance the legislature allowed  as part of its pension reform an increase to that cola formula that would allow boards to increase the cola based enigmas of one thousand dollars we have it's a local option has to be adopted by in belmont town meeting and that would add some additional liability to the funding schedule as well and miss reilly has run some numbers for the board to consider before we bring it to the floor meeting however i would point out that  the current cola the base that system belmont we're now in the minority most municipalities and counties have increased the cola base the state and state teachers are at thirteen thousand dollars now so that is something that we are giving serious consideration to that is requesting tommy to approve an increase to the cola base i just want to make make that clear and i would ask any other board members who may want to comment on what we've heard from the board of selectmen thus far if they have anything to add to that yeah i want to say something mr wellman you get my just to be clear that back in two thousand and seven two thousand guarantee that's not going to happen again so we can come up with all the numbers that work for everybody but in a month's time we may have a crash and went back to square one were stopped and you are now so you gotta keep that in mind hard i'm sure they do it let me actually ask for just a clarification first on the call a provision could you explain once more what discretion the retirement court has to public employees at the discretion of the legislature had to be a specific authorization from the legislature to do that eventually the legislature changed the law to allow municipalities and county regional retirement systems to fund call is based on their own vote so the formular states that every year when the so security stablish has its cola based on the consumer price index for working families that the retirement board is authorized to grant the koehler as well if the so security increase is greater than three percent the board is authorized to grant three percent they're still locked into three percent if the so security coal reserves less than three percent the board is still authorized to increase the coal is to three percent on first twelve thousand dollars so let me just clarify that isn't authorized or obligated authorized and not obligated if so it's still a discretionary act on behalf of the retirement board to grant a cost of living increase to its retirees i can tell you that since the law was enacted however the bo granted colas to with retirees every year every year but on the first twelve thousand on the first twelve thousand which is three hundred sixty dollars a year just just for clarification granted three percent even when the social security called it was less than that yes yes and the argument that in support of that has been as we and we've heard from our retirees is that the consumer price index used by by so security is really not reflective of the basket of goods if you will  a retiree has to pay for especially the waiting to its energy costs and medical expenses the proportion that's in the c p i for working families is a lot different than the c p i if they would create one for retirees and  people there has been discussion about creating another c p i index for folks over sixty five if you would that has not happened yet that i'm that i'm aware of ok and just for clarification again in the code because it's only applied to the twelve thousand dollars base doesn't really give the same inflation protection that social security does so there's been deterioration there's more deterioration of a bell much time an allowance than there is compared to just that i'm just trying to understand better the statutory obligation of the town and have the actuaries cost it out in the impact on the current estimated liability of continuing the three percent cola versus an alternative scheme of paying the statutory minimum the three percent is included well no but i'm asking that it's regardless of what's authorized and in an alternative for example where belmont paid the social security cola for example what effect does that have on the total liability so because the three percent is intice a paid in the funding schedule expected gain you'll see what the next valuation we've estimated that for retirement systems we have not changed the long term assumption that on average they'll be two and a half percent you know just because the pattern of increase for our retirees the so security cost of living is based on the entire benefit of the recipient would receive it's not locked into a certain flat base cost of living has not gone up at all our own analysis shows that in reality the cost of living for many of our retirees has in fact gone up despite the what the c p i may say especially when the town changes health insurance policies and things of police to grant a cost of living increase to our retirees many of whom are are being paid less than poverty level for under the federal guidelines and term we appreciate and understand that i'm just saying that i think if i were liability was calculated assuming a foreign a quarter percent increase for public safety employees and a lesser amount for other town employees and i earlier you retire earlier so  how sensitive is that he amount of liability to this assumed increase in public well in compensation generally but split out across public safety employees versus others for example if instead of for a quarter suppose it was three and a quarter just to give us a sense of the sensitivity the assumption is is set is a long term assumption looking at long term inflation you know assuming interest rates go back up and inflation gets back to more normal levels it's consistent with the level of investment return assumption we have right now so while we certainly review that assumption each and every year it would be open to you know short term but lowering it in the short term that was really the primary source of the experience gain that i mentioned earlier so to the extent that it's a terms of quantifying the effect if for example if the assumption was for a quarter percent for public safety employees and the experience say next year was just picked to pick around number three and a quarter percent would be one percent one percentage point less and you quantify the magnitude of the impact of that experience  one percent of the active liabilities would be about six hundred fifty thousand dollars ok i mean unfunded liability that's but it's paid pretty rough that's but that assumes one percent less for all employees than the assumption might be about six hundred  i just wanted to summarize some introduce yourself my name is greg madison a member of the work committee and was one of the authors of the report on the pension system in belmont and i just wanted to summarize some of our findings from the report ask a couple  past that is projected to go be going forward would grow much faster than town revenue growth and this gets to the issue of over the next decade there would be what we call excess amortization that is higher spending for pensions as compared to the rest of the budget that i think by our finding would require twenty million dollars of either budget cuts or tax increases to keep the same level spending in the budget today and we can quibble over the margins on that but i think that was a pretty strong and straightforward finding and then if you look if you peel back the onion there's really two sources of that challenge one is that the you know simply put the town i did a poor job in decades past of adequately funding the pension system and today is probably i would say in the bottom third with the  fifty four percent funded ratio compared to the other systems in the state that's actually a slight improvement and that in combination with a very aggressive payment on the front pay off the funded liability means that belmont spends much more than just about any other town in the state every day every year i would say that the contributions as a percentage of payroll or are certainly in the top quarter that's a measure of just how much we're paying each year for the pension system and again with those would be for cathy i'm wondering if you could characterize the strength of your recommendation on the assumption changes and i would offer up that i think that going to generational mortality and lowering  pretty reasonable considerations and so i'm trying to get a sense of whether the retirement board is reaching a decision on that or whether you might characterize that as something that that really very much ought to happen or is a closer call than that you know we think that change to the generation what we think i think the change to the generational mortality and to seven and a half percent should be made that seven and a quarter be nice but i get i get the balancing act i don't want so mr chairman to members of the board i think one objective here is a kind of clear off the deck of some of the issues i think that makes sense as you describe your for you sheri duty as being to the retirement system so a question i would like to ask is that along with the funding schedules being proposed do you all have a plan to pay for the twenty million dollars in budget cuts over the next decade i think that's an unfair question but i wonder if you could just respond to that because i think part of what we're trying to address here is that the retirement board has one set of fiduciary duties and i think other people in the room have other obligations to go around because we have such a narrow constituency it's it's bound to conflict with the constituencies of brother officials and we are sensitive to that and that's why we're here today to listen to input from members of the warrant committee and the board of selectmen and is no doubt that the funding is a problem and it is an unfair question thank you greg granted this is a snapshot in time as of one sixteen or twelve thirty one fifteen and as the members of course lukman noted we may be back here again in two years going over a whole different set of numbers and a whole different funding plan  and maybe at that particular time we will need to increase the appropriation or for extend the appropriation out again to sort of mitigate the harm or the burden i should say that this places on the town and town revenue i don't have any particular magic wand that i can wave to say ok come up with fogge twenty million dollars over the course of x amount of years to fund this plan i just know that it has to be done that there is an obligation that is in law that requires us to do this and in the days of kicking the can down the road again and again and again and let the living future taxpayers and future generations pay for this unfunded liability treat them important as important issues that must be funded along with other essential town services so that's essentially greg would my response would be to where we get the twenty million dollars  stand again one of the question could you clarify the nature of the decision that the retirement board is about to make as i understand it you were going to make a filing with her act or a recommendation in the month that we won and the nature of that filing is what exactly we need to select a funding schedule and ship it together with the evaluation results over to the public employee time restriction commission terror act as it's called will then look at that funding schedule no doubt they will accept the schedule that we present and they will send it back to us with authorization for the appropriation which we will then pass on through to the time and that's not a two year commitment or a one year commitment or open ended it's a two year commitment right will be for fiscal eighteen and fiscal mind writing and once that recommendation is made and parecon approves it is there any scope for change interest that then set for the next two years you can change it you can change the funding schedule but i would say that it would be take extraordinary circumstances to do that and because we look pretty much like we say that the numbers here are provided so the tongue can make the plans for the next two budgetary seasons at least however if something does occur the board is authorized to come back and seek perks approval to submit an amended funding schedule thank you i ask not because i have any intention in that direction just so the group here can understand just how this entire system and i don't think we've ever gone back and changed the funny schedule once it's been submitted correct not that i can recall that's right greg yeah i think there's a been a lot of good information presented here and it's obviously a complex topic and i would just board of selectmen and the other decision makers to really step back and think about what our principles and goals are i think we all agree that we want to pay every penny that we promise to beneficiaries on their pension benefits i think we all agree that we have to adhere to state law and be mindful of rating agency considerations but the third the third piece of it is we also need a plan that is affordable and sustainable with the budget and i think so far the funding schedules that are being presented fail that test and i think ultimately either that the town needs to come up with a plan to pay for these additional payments and that's either raising taxes or cutting the budget or consider other funding schedule options that will pay for the promises and still meet the other tests that i mentioned so i think mark i actually we haven't spoken about this before but i think the place that you landed kind of taking the different pieces of information and where the different thresholds are in terms of twenty thirty and so forth is a pretty reasonable place to start i think that there were examples that were provided by the actuary in the past and included in our report that would fit with that recommendation and i think jim suggestions about looking at the enterprise fines as an additional police and then also we have to look at it from this point of view probably electric rates or water rates are pretty high as they are at this point in time and so it it places an additional burden on taxpayers either way you look at it and i don't have an opinion on this but i just wanted to point out that i think that it was an interesting idea as a way to i think it was it was important that we looked at that and we and the third point that you've made there is exactly why you know we're seeing here in were expressing you know i thought thoughts to the retirement board about perhaps there's a need to consider you know a slight extension here if you junction within a one time infusion of money if in fact we find that twenty thousand budget although that's unclear to me whether we find it or not because we have other competing demands but i appreciate we jim sloman said earlier and that is the more money we put up front the better off we're going to be going forward because the more money you can invest hopefully in you get a return on that the better off we're going to be tom you know just watching that that great made about the current funding schedule being inadequate i would i would point out right every year so that the town does have not twenty million dollars but if they do have some cash that they can put into the pension scheme to pay that would certainly have a long term impact on the percentage increase of appropriation by an annual basis yet i think i'm looking at it as a balance right where where you know if there's an understanding agreement that we extend the funding schedule you know two or three years if you juncture with some one time fusion of correct one thing i said i know i know i used the phrase the one time infusion of cash but if you look at the schedules there if that money is put in and it's built into the schedule to you also it's not a one time so i say half a million that is half a million a year they've got with generally my question was i understand that the overall liability is based on modeling and so it changes but how would rating agencies view investment in lowering them fight liability versus reserves because i know treasurer from a rating agency perspective but the rating agencies look at the study management top to bottom not jumping around not making quick decisions but very thoughtful decisions so it's a combination of everyone sitting around this table coming up with a strategy that is well thought out that's what the rating agencies look at you know whether we throw five hundred thousand or a million dollars and you know the rating agencies are going to look at that and say are you thinking about your operating budget i think about your free cash position are you thinking about your next operating over right so very consistent thoughtful management one of the things from a radiator to perspective that i have talked about over and over again is that we are going to pay off my pension liability by two thousand and twenty seven we were going to take those additional resources and stop paying down our opap consistency time after time after time well i just would come back with a comment to that that if we were able to use some reserves to make up front payments to or over time payments to lower the term liability we actually see a considerable savings in terms of the operating budget and so it may be for kathleen i want to see is the assumption that the work force level stays constant throughout this that we have the same number of employees from going forward so so if we had so if we had growth in the number of funding anyway and then and then on the on on all of these schedules when you pick a rate of rid of rate of a return that you assume that you achieve that every year right where is where is in fact it's we're sort of captured by you know what is possible possible possible in fifteen years but in fact you're going to come back into two years and the only thing certain is going to be that the fiscal eight eighteen in the fiscal nineteen on numbers and beyond that it's certain that we'll come back in two years and have a brand new conversation about this correct right and so in terms of what the board of selectmen have put in front of us i mean jim jim i think i think i think of that is an interesting thing to think about them in  prize funds i mean i think there are pros and cons but i'm but i definitely want to want to think about that more and then in terms of the free cash i mean i you know i share david's can concerns and if we did want to use free cash i think it would be after we heard what the retirement board was and so if they came back and said we're sticking with twenty twenty seven you know three hundred thousand dollars from pre free cash would would be the same as bumping it out to twenty twenty eight or eight hundred thousand dollars from pre cash would be the same as lowering our school age eighteen in one thousand payments to twenty thirty so i think so i think you've got that dial to work with and  that if you're not that you're not satisfied with where they come  out michael even send a member of the work committee a couple comments really quickly first of all i'd appreciate the collaborative approach of the retirement board is bringing to this we all know that the retirement board has the the decision rights as to what is happening here and we appreciate just the dialogue so i thank you for that secondly i think that as greg was saying earlier the changes to generational mortality and seven at percent vestment growth seemed very sensible but it sounds like that's the path you're going on that makes a lot of sense to me that does add seven million dollars to the twenty million dollars problem that greg was talking about before but it does seem like the right answer so it just makes for a bigger challenge to try to deal with as greg was also mentioning the fact that we're continuing to grow at seven percent does by meaningfully exceeding our revenue growth of roughly three in africa and the euro creates that this ongoing problem and so i think to the extent that we can try to find a way to have that rate of growth come closer to three and a half not necessarily be flat which is effectively it essentially would be saving us money on a relative basis but but having it come closer to three now five percent i think would be a desirable thing i think the notion of an immediate cash infusion as i think has been discussed is not actually a free thing to do because it then has to be built and in subsequent years so that's not obviously the right answer it's front from my perspective the other thing i would say two more points is that the the notion of moving to thirty thirty two or twenty thirty two i'm sorry does not necessarily seem like the right answer to me i think as others have said in part because you're going past that twenty thirty threshold and i don't know what ford would say about it rating agency impact but that just doesn't feel right i'm not the expert on it but that doesn't feel right to me and lastly i think that if you look at schedule one b that you guys created which shows that one year move from twenty twenty seven to twenty twenty eight you see i think exactly the kind of sort of directional  supports to relieving against the operating budget i think that we would like and so from my perspective what i would be interested in seeing would be scenarios like that which basically look at an extension from instead of twenty twenty eight another twenty twenty nine and another twenty thirty i think those to me those three scenarios which i know you haven't looked at those are the two that those keep you within the twenty thirty time period and would likely bring us down in those increases from six point to six point four to something lower than that i think those are i think be interesting to consider obviously the decision rights are yours but i think that's what i would for least from my own personal spec to be encouraging to think about as and some additional scenarios but i think the one b i think is heading in the right direction but as greg said it doesn't really solve the problem that we have which is we're going to have to make very significant cuts or reallocations if we continue with even a one b schedule  know these are tremendously difficult situations and there's a lot pulling a lot of different hands grabbing at you know a budget pie but until there is enough money additional funds put into this they can shut the town down from my perspective they can shut the town down and say you can't pay your teachers you can't pay a policeman if retirement retirees get the first dibs on the funds and i don't mean to be dire anything about it but that's one of the things that i reckon that we've been talking in the board i commend jim williams for bringing it public but it's not going away that's that's that's my fight so i encourage mark you in the board together give me some guidance talk with award committee people how you would like to approach it so i understand it's it's not just a numbers only piece of good news i seen a nice schedules is that in two thousand and twenty eight if we stay on the schedule we have fourteen million dollar windfall i appreciate that it has been consistently consistently committed to open but that's not a decision we have to make now but if i'm still here and we're in twenty one twenty two and someone's asking us to appropriate thirteen or fourteen million dollars that's what i'm going to say think about borrowing against that windfall and stretch it out that way and put it in on the back  burner just really quickly and in an effort to help if the free cash flow infusion was talked about being done on a one time basis which if david inflates if we could afford it i would absolutely support to jim's moments comments just to set expectations that's not going to have a significant impact right now half a million or a million dollars over ten years yeah  it would absolutely and then it's going to move the needle a month or two i guess is my point not a not a year ok and i to really technical question for kathy i can follow with afterwards which is the increase in the service cost as a result of the assumption changes was about a  third relative to last thought that was higher than i would have expected i can ask you that afterwards but i know that you're busy and i want to make sure i got that question roy upstanding i have one more personal observation which is that i  of course this is all a matter of crystal ball forecasting but i'm concerned that even a seven and a half percent return will be quite optimistic for a fifteen year horizon and we haven't seen illustrations but if if in fact over the relevant horizon if the investment return was only six percent or six and a half or so it would have an excess a very very dramatic effect on these projections so i would be concerned about any funding scheme which decelerates even these proposed these current proposals from current levels of anything i would be more comfortable if the funding was actually somewhat increased and until there was more of a cushion as greg pointed out the town has has a significant shortfall in funding rates relative to other towns and i think that the question of a significant extension and buying a reduction in annual contribution in return is something that is more so safely considered in a couple of years but i think right now it's it just sounds premature given the what i would consider the very significant investment return risk to reduce funding today with the expectation that somehow it will be made up by an aggressive funding schedule ten years from now sorry and aggressive investment return ten years from now thank you tom gibson with regard to the investment return the rate of investment return this is been a very a touchy subject around the country to what the discount rate should be for public pensions should be a risk free investment rate that should be two percent three percent treasury rate so we are aware of that but i would point out that the long term historically looking asked the new england pension consultants to provide us with that information which we review it up would be eating several every month so our investment program or all to basis has been successful when compared to other pension funds both here and across the country having said that we all know that past performance is no guarantee of future success as my money managers tell us all the time and the projections from the experts have been expect lower returns going forward so you're absolutely right that you know is seven and a half percent even a realistic number today to ask your funds to return to you so we are long term investors it is a volatile market as we know as we exceed our investment returns and some years we we don't exceed our best returns but we look long term down the road and long term historically we have been on target with our investment returns second number a second issue i want to discuss maybe i know there may not be consensus here but i will put it out to the board of selectmen in the warren committee what do you think you can afford for fiscal eighteen and nineteen you want to keep the seven percent increases that a locked in you want to see lesser increases you want to see them keep the seven percent for the next two years and then perhaps go down more in the years following have a reduction in that what we've heard a lot of helpful information from various sources but i know it's difficult to get consensus on something like that but our board always works towards consensus on issues even turnley when we have other issues and i would ask for any input whether members have comments or anyone from the you have michael contemplating and and from my perspective i would be very interested in seeing what a funding schedule wall that shows a three percent a year increase would look like i understand that you know if if such a funding schedule were to go into effect for two thousand and eighteen that you know that there would be a big increase in the town's contribution but if we had a funding schedule that that that that showed a manageable level of payment over time and three and a half percent i think us mike lee vinson said it's something that i think is is something that's that's that's more doable in terms of the growth in the town's revenues widmer town moderator i think it's been a terrific discussion i mean the thing as i sit here over the last two hours and several people have talked about it is this is a balancing act and  there's no right answer and there is in many respects no good answer because as tom said we are all collectively dealing with the fact that this was underfunded historically so we collectively the citizens and the governance of this town have to deal with the fact that this was underfunded and we're trying to make up for the sins of the past and there's no one right way to do it i would make a couple of comments i guess i come person and obviously this is the decision there's no argument about that out of the retirement board one thing that hasn't and i want to emphasize and that is the tradeoff here we talk about the budget problem if we're funding pensions at seven percent growth in our revenues at three and a half percent and we all know that means we've got a problem budget wise but i want to tie that back into public employees so we have retirees who have every right and they will be i mean there is zero percent chance that belmont will ever walk away from that obligation zero the only question is how is the funding issue but the consequences of funding it let's say at twenty twenty seven and were adding to that liability because of the mortality and the and the rate of return the consequences are that we have not only on the services the town reforms and grants but on the compensation the number of public employees and the compensation of public employees because with seventy percent of the cost of town budgets employees  that's where it's going to come so the tradeoff here isn't just between current and future it is between public employees who have retired and public employees who are currently work that doesn't there's no answer to that but that i just want to highlight that as a to the certain bring it to the surface as one of the very difficult tradeoffs here and there are many tradeoffs and there's no right answer but i think this is a great conversation m benefited versus the rest of the employees is not the way i see it and i do i don't think that's the way it actually works because we have one pension fund and i view the enterprise fund as a source of funds for th and if you're a retiree more is better than less so what i'm saying is if we have a source of money that we can keep on a tighter schedule in even ten years i would not consider to be aggressive just saying it's tighter we know how we can fund it in we can give it to the pension fund and i also wanted to mention that i don't see any risk that the retirees retirement fund will not be paid one because it's statutory into because they're working on and older just for the board to understand that's that's the demographic that we're dealing with thirty percent of the town i believe has children in the school district and thirty percent of the town is over sixty oh so want to talk about just a minute about the idea about what we've told moody's and pear ak and this may be a false concern on my part but i think you know as the idea that we 're telling moody's that we're going to do x y z and we're telling parents we're going to do x y z when we know is we're sitting here we haven't provided the funds in there unlikely to materialize unless we cut services or have another override i think that's a problem too that you know i'm concerned about telling the state and telling the rating agencies that we're going to do something that we in all probability won't be able to do unless we take another action in that next action has to be approved by the taxpayers there's no one in this room that can you know write that check we have to go to the taxpayers so that's the other reason i'm attracted to and i'm going to stop selling but i'm attracted to this straight line amortization because we know we can pay that within within our current income sure as roy says there is investment risk we can deal with that we have to address that two years later as jim says more is better so we can offer you the enterprise fund we can offer you an increased amortization schedule we stick to straight line i don't know if you see your way through twenty thirty if i would recommend using the straight line you know for a twelve year schedule but certainly more is better ok th