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Town Manager explains changes in pension liability figures

Post Date: 11/22/2019 4:20 PM

An update from Town Manager Leon Goodwin:

A previously prepared summary explains the significant change in unfunded liability between the actuarial valuation of Jan. 1, 2018, and the draft valuation of Jan. 1, 2019.

First and foremost, it should be emphasized that the $32 million figure, as discussed at Finance & Warrant Committee meetings earlier this fall and at the Warrant Review meeting on November 18, is not final and should not be a basis for decision-making. The draft valuation and draft amortization table are currently under review by the Public Employee Retirement Administration Commission (PERAC). In December or January, we should know what the Town’s appropriation obligations are for Fiscal Year 2021 and beyond.

Key takeaways from the attached and my review of the draft valuation are that the large spike in unfunded liability was driven by the following factors:

  • The assumed return-on-investment (ROI) was reduced from 7.5% to 7.25%, lowering the estimated investment return by $4.6 million.

  • The mortality tables were updated (a change that would have happened even if Dedham Retirement Board had continued with the prior consultant), increasing liability by an estimated $8.2 million.

  • Stock market performance for the 2018 calendar year was -2.25% versus the actuarial assumed ROI of 5.85%, $2.2 million lower than forecast.

  • Other experience factors from 2018—employee turnover, reduction in contributions, mortality, and early retirements, combined with the software and actuarial methodology change due to the change in actuaries—equate with roughly $13 million in increased liability.

I met with the Retirement Board on November 21, and we had a productive discussion. They are very cognizant of the difficult situation that this change puts the Town in. The Retirement Board already decided to perform another valuation as of Jan. 1, 2020, and it is hoped that a longer experience window and the strong 2019 stock market performance will moderate the effects of the changes in assumptions discussed above and in the attached summary.

Leon Goodwin, Town Manager
Updated at 8:50pm, Friday, Nov. 22

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