Saugus pension storm on horizon

SAUGUS – State aid cuts and rising costs aside, the town is looking at a whole new financial storm that is brewing on the horizon and Town Manager Andrew Bisignani said the healthcare crisis will pale in comparison.The volatility in the stock market is leading to an escalation in pension costs that Bisignani fears is going to become a huge liability for all cities and towns, including Saugus.”Right now we’re in pretty good shape,” he said. “It’s 2011 that is going to be bad.”Towns across the commonwealth are required by the state to have their employee retirement pension plans fully funded by 2028. The portion that is unfunded, Bisignani said is referred to as the unfunded liability. Saugus’ pensions were listed as 66 percent funded in 2007 putting its unfunded liability at 34 percent. That may have changed, however, in the last year due to the stock market crashes.To cover the unfunded liability, the town appropriates money each year based on a funding schedule laid out by PERAC, Public Employee Retirement Administration Commission. That appropriation is based on the performance of the stock market, which lately has not been stellar.”We were getting 7 percent to 10 percent over the last 10 years,” Bisignani said.With the roller coaster stock market of late however, Bisignani said they won’t likely see returns like that for some time.”We could be negative 20 percent,” he said. “We won’t be meeting the funding schedule so we will have to increase our appropriation drastically to meet the schedule.”That means a much larger appropriation from the town’s general fund.”This will be a bigger problem than the healthcare,” Bisignani said.The town was hit with skyrocketing healthcare costs two years ago that took a huge bite out of the budget and led to a myriad of financial problems. It was essentially rectified after employees agreed to sign onto the state’s Group Insurance Commission plan.Based on the figures from actuaries, Bisignani said he budgeted $4,118,261 to cover the unfunded liability for fiscal 2010, which will be fine. The estimated appropriation for fiscal 2011 is $4,270,698 but that is the number Bisignani said could jump substantially.”We’ll know better in the fall,” he said.The actuary reports are completed every three years and are due to be updated in 2010. That is the report that will include the stock market ups and downs over the last year or so, which is why the appropriation estimates are likely to go up.Bisignani said there is no real danger that everyone in town will retire at the same time and the town won’t be able to cover the pension costs but the town is required by the state to meet the funding schedule.”It’s a big issue and it’s going to be bigger,” Bisignani said. “We’re really not in such bad shape now. It’s the future that worries me.”While other communities cut back on their appropriations when the stock market was riding high, Bisignani said the town’s Retirement Board remained conservative.”It’s a credit to them we’re in as good a shape as we are,” he said. “We’ll just have to see what happens.”