Retirement Board vote will have lasting effects
Published on July 1st, 1998
STONEHAM, MA - Although an additional $20 per month in the pockets of town retirees does not sound like much, Monday night's approval of Article 1 on the Special Town Meeting warrant does carry a significant impact on the town's financial picture.
The "worst case" scenario of a 3 percent annual cost-of-living increase, as granted by the Stoneham Retirement Board under the direction of Town Meeting, is expected to extend the town's unfunded liability for an additional 10 years. The cost of this is expected to be about $20 million, according to Finance Board member John Warren.
Warren explained that there is no budget appropriation for the increase through the year 2012. He stated that what could have been spent elsewhere, will now be appropriated to fund the unfunded liability in the retirement system.
"The town will stretch out the funding schedule 10 more years and this has a $20 million cost," Warren stated. These numbers, he described, reflect a "compounding effect" and take into consideration those who have not yet entered the retirement system.
"It seems an unbelievable number for someone getting just $20 more a month," he stated.
The Retirement Board's official authorization of the Fiscal Year 1999 increase of 2.1 percent, following Town Meeting, reflects the current cost-of-living level and applies to the first $12,000 of the retirement benefit. This equates to approximately $21 per month or $252 per year.
Retirement Board member William Abbott advised voters that extension of the unfunded liability schedule to the year 2022, reflects the "worst case" scenario, which is likely to result only if increases were granted each year at the established maximum of 3 percent annually.
While not likely to happen, since the fiscal 1999 request was for under the 3 percent ceiling, this worst case would, however, be presented to the state, according to Abbott.
Retirement Board Chairman Janice Houghton compared the unfunded liability schedule to a mortgage.
The town's "mortgage" she described would have been paid off in 2012. With the COLA increase, the town must "keep paying for another 10 years."
She cautioned, however, that the numbers represent projections and that a complete study of the figures occurs every two years to gain a more accurate picture.
Town Accountant Ron Florino confirmed that the town is "staying within the appropriation" that is granted each year to cover retirement system expenses. However, an estimated 3 percent COLA increase each year, he stated, will "extend the life of the unfunded liability" through 2022.
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