Although Quincy has approximately $300 million in unfunded pension liabilities, the Quincy Retirement Board says the city is on track to pay it off by 2040.
According to Edward Masterson, the board's executive director, the city receives retirement contributions three ways – through employee contributions, investment returns of the portfolio, and an annual appropriation from the city.
The difference between that total number and the number it would cost if every single employee in the system retired today, creates what is considered the “unfunded” amount.
State law enables the city to make up that difference over time, and recently extended the deadline for having a net zero to 2040.
According to Quincy officials, the city has a plan in place to pay off that difference, and people shouldn’t be worried about the high number.
“It’s not something that needs to be paid off tomorrow,” Masterson said. “The retirement system is an ongoing concern. You can show any of your constituents that there is a funding schedule in place. As you go along, things change, but there is still a plan. That liability only becomes an issue if every person in the system retired tomorrow. It’s a paper number at this point in time.”
The need to increase appropriations to the retirement account is also dictated by how well the market is doing.
Currently, the average rate of return is currently 4 percent, down from 8 percent before the economic downturn in 2008.
The economic downturn also prompted a prolonged schedule to paying off the unfunded amount, which used to have a deadline of 2028.
"At some point, you’re buying time to bet future gains against those payments, and the payments start to come down again,” Masterson said. “There is time to work with it. When you have some time, you have ways to pay things off.”
Cinder McNerny, a financial advisor from First Southwest who attended Monday’s City Council meeting, agreed that Massachusetts was ahead of the game, solely because other states don’t even having a funding schedule in place.
Additionally, there is a possibility that the state might prolong the schedule yet again, depending on the market.
However, if the market does not recover substantially, and the deadline stays the same, the city will have to increase the appropriation substantially over the next 28 years, from $21 million this year, to $29 million in 2022, to $41 million in 2033, to eventually $53 million in 2039.
“[The number] does ascend, which is why there is concern about future, especially with Proposition 2 1/2 constraints,” said McNerny, referring to the state law that limits increases in property tax revenue.
The city also needs to start thinking about funding its Other Post Employee Benefits (OPEB) account, which currently has no funding in it, and thus it isn’t earning anything in the market.
“There are options of how to fund that down the line…and there are no deadlines for OPEB,” McNerny said.
City councilors resolved to start addressing both issues, but took no action Monday night. The administration has already resolved to set aside 20 percent of the reserve fund to fund Other Post Employee Benefits and officials said they will continue to follow the schedule as laid out by the board.