SHIRLEY — The town has paid its annual assessment to the Middlesex County Retirement System in one installment versus two this year, said Town Treasurer Kevin Johnston. The approach paid off, saving $12,277 in fiscal 2011.
The Town Meeting appropriation for the pension plan — previously paid in two installments as allowed by law — was $625,672. But by paying the assessment in full, the town got a 2 percent break on the total, which was reduced to $613,395.
“That’s a significant difference,” Johnston said.
Based on cash flow and the success of the Tax Collection Committee in recouping back taxes, prospects looked good to go for a single payment this year, Johnston told the Oracle in a recent interview.
Savings may seem relatively small in relation to the town budget of nearly $13 million, (more than half of which went to schools, bus transportation and the annual assessment for Nashoba Valley Regional Technical High School.) But Johnston said that saving versus spending, the money earned $800 in interest over six months.
As scrutiny of how state and municipal governments do business increases, Johnston acknowledged the common impression that the pension system is rife with abuses. But he insisted such cases are rare, and that it certainly isn’t true in Shirley.
Retirement benefits paid to Shirley town employees are “not generous” by today’s standards, he said. And the same goes for the amount the town pays annually into the Middlesex County Retirement System.
But the town’s pension burden has become heftier over the years as its “unfunded liability” grows. The state has set a deadline for communities in the commonwealth to catch up. By 2040, each fund must be fully funded, Johnston said.
Until 1988, it was a “pay as you go” set-up, he explained.
But things have changed.
For employees who are retired and contributed 5 percent of their salaries toward the pension plan, benefits are now subsidized by the system, Johnston said. The employee contribution is 9 percent, with an additional 2 percent on annual salary amounts over $30,000. Assuming a career span from mid-20s to age 65, contributions should fully fund the system going forward, but there’s a structural deficit now.
The state set a deadline of 2028 for the system to be fully funded, Johnston said, but due to market losses that deflated returns on pension-plan investments, the deadline was extended to 2040.
Johnston said it would take 8.25 percent interest earnings to maintain the system, which has lost 10 percent, creating an 18 percent gap. That translates to a $600,000 bill that must be paid by 2040.
When asked how the town plans to do that, Johnston said a strategy hasn’t been worked out yet.
“There are a lot of factors to consider,” he concluded.
Having covered the basics previously presented to selectmen, including pension plan reforms that apply to Shirley, Johnston was asked about an issue that came up at that meeting when Selectman Andy Deveau asked Retirement Board representative Tom Gibson about a specific case in general terms.
What if a town employee of many years standing — fired for cause and presumably forfeiting his pension as a result — got a job in another town and then retired, he asked, would the new pension provision that allows one community to bill another on a pro-rated basis apply? Could the other town bill Shirley for years that the employee worked there? Gibson said it was an interesting question, but he couldn’t answer it off-hand.
Johnston couldn’t either. But it’s not an academic question for him.
Like others in the Town Offices, he was close to the epicenter when the upset that Deveau referred to erupted in public: The former town administrator, who had worked for the town for many years, was accused of illegal wiretapping and secretly planting a camera in the ladies’ room at the Town Offices. He was fired by selectmen. The case is still in court.
Selectmen took appropriate action at that time, and Johnson said he’s confident they and other town officials can deal with whatever comes next.
“We will follow the law and do the right thing,” he said.