Newton Will Fully Fund Pension Obligations by 2029

Mayor Setti D. Warren announced on Tuesday that a third party actuary has confirmed the administration’s funding strategy, which will enable Newton to eliminate the city’s unfunded pension liability by the year 2029 and the OPEB (Other Post-Employment Benefits) Liability by the year 2042.

The actuarial valuation of the city’s OPEB Liabilities for the fiscal year ending June 30, 2015, has been completed and confirms the administration’s plan is financially sound and sustainable, said the release.

“From day one of my Administration, we have been laser-focused on developing a strategy for the long-term financial sustainability for the City of Newton,” said Mayor Warren in a statement. “Immediately, we set the building blocks for putting the City’s financial house in order: instituting zero-based and outcomes-based budgeting, using data to drive decision-making, establishing a ‘rainy day fund’, and shaving nine years off the funding schedule of the City’s pension liability. And now, the final step toward successful financial stewardship will allow full-funding of the OPEB liability by 2042 using conservative financial assumptions and setting aside a specific amount of money each year.”

The key to keeping with the strategy will be the city’s commitment to funding the pension liability by 2029. Supported by Warren’s administration, last year Newton’s Retirement Board voted to implement a funding schedule which will fully fund the retirement fund by the year 2029. This funding schedule will require an annual increase of 8.75 percent, the announcement continued.

In 2010, the Warren Administration established an OPEB Liability Trust Fund, which was further codified to be an irrevocable, dedicated trust fund as a vehicle to make advance contributions for retiree health care benefits.

The Fiscal Year 2016 Budget includes an OPEB appropriation of approximately $1.4 million representing 3.25% of the salaries of more than 760 employees, hired after July 1, 2012. The percentage will continue to increase and as more new employees are hired this funding method will cause this appropriation to grow exponentially. For the next 14 years, this policy will be employed for all municipal workers hired after July 1, 2012, and the policy will continue of “pay as you go” for employees and retirees hired prior to July 1, 2012.

However, all of this will change in the year 2029. With the projected full-funding of the Newton Contributory Retirement Fund, the Ccty will then be able to focus on repurposing pension liability appropriations to the OPEB Trust Fund, creating a viable, sustainable financial model by which to fully fund the city’s retiree costs, said the announcement.

Newton received an AAA (stable) rating, which is the highest possible, from Moody’s Investor Services in 2015.

“We are in the process of creating a livable, sustainable city for the 21st century,” said Mayor Warren in a statement. “We have developed a vision and set a course of action that will enable us to meet the needs of the present without compromising the ability of future generations to meet their needs. Much of this could not have been possible without the support of the Honorable Board of Aldermen and the faith and trust that our citizens have put in us.”