Officials with the audit firm of Powers & Sullivan LLC of Wakefield presented members of the City Council Audit Committee on Tuesday with a good-news/bad-news scenario with the city's troubled pension plan.
The good news is the pension system is now 39 percent funded for all its future obligations, which is an increase from as low as 26 percent a few years ago when it was rated the worst-funded employee pension in the state.
The bad news is the city is going to have to put more and more money toward pensions each year if it expects to reach solvency by the target date of fiscal 2033. For the last few years, the city has been increasing its pension funding by 9.2 percent per year.
Michael Nelligan, an auditor with Powers & Sullivan, advised counselors that the city needs to "stick to the plan" even though increasing pension spending each year means less money available for other areas.
"You should be able to get there. It will not be without pain but you should be able to get there," he said.
Compounding the amount directed to pensions by 9.2 percent each year means the amount in actual dollars will increase year.
This year's budget allocates $56.1 million for pensions, an increase of $4.7 million from the $51.5 million allocated last year.
The city projects pension spending, based on the same formula, would mean the annual amount would rise to $61.1 million next year, $67 million by fiscal 2025, and $73.1 million by fiscal 2026.
Projecting it out over 10 years could mean the annual amount by 2033 would be as high as $124 million.
Massachusetts is requiring all public retirement systems to be fully funded by 2040.
Nelligan said the city's focus over the last few years on the pension has shaved $100 million from its original unfunded liability of $900 million.
Councilor Tim Allen, who has focused on the pension issue, said for the pension to be funded at 39 percent is "far and away the highest we've been...When we started focusing on this, it was 26 percent. That's good progress."
The city earlier this year studied whether to issue $755 million in pension obligation bonds to aid its troubled pension system. It was seen as a way to borrow funds at one rate while the expected investment returns on pension funds would come in at a higher rate, resulting in savings of up to $20 million a year for the city.
The plan was shelved in June due to volatility in the stock market affecting interest rates.
Nelligan said the audit of city finances showed "no significant instances of non-compliance" or other problems. The audit of city finances is required to ensure the city is complying with federal standards related to $98 million in grants from the federal government for the school lunch program, special education, community development funding, and coronavirus relief.
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