A cost-of-living increase has been approved for municipal government retirees in Springfield, Massachusetts even though it increases the city’s huge unfunded pension liability.
Springfield city government retirees received a 3 percent cost-of-living boost in their pension checks back in July and now will have their retirement pay boosted by a total of 5 percent.
It amounts to roughly a $260 annual increase for about 2,700 retirees. But it is projected to cost the city, which has the largest unfunded pension liability in the state, about $7 million over the next 10 years.
City Councilor Tim Allen, who chairs the Finance Committee and has been a consistent hawk when it comes to attacking the city’s huge pension fund debt, said the cost-of-living adjustment is the right thing to do.
“Social Security went up 8 percent this year for people who receive Social Security and most of our retirees do not receive Social Security,” Allen said.
Last November, former Governor Charlie Baker signed legislation that gave state and municipal retirement systems the option for the one-time 5 percent cost-of-living increase.
“It is hard always to take on a new expense, but this expense in my mind we have to take on from a human standpoint, from a sustainability standpoint for our people who have worked for the city and are in the pension plan and need us to be looking out for their best interests,” Allen said.
Mayor Domenic Sarno and the Springfield Retirement Board endorsed the higher cost-of-living adjustment. Board member Karl Schmaelzle said with the historic consumer price inflation many retirees are struggling to afford basic needs.
“The people who are retired really-really need the money,” he said.
The City Council this week approved the pension increase by an 11-1 vote. City Councilor Mike Fenton said he was not comfortable voting for it given the city’s already daunting unfunded pension liability.
“I just don’t think we should be sending a message of increasing our COLA adjustment at a time when we all recognize the urgency of the situation with the pensions,” Fenton said.
Springfield’s retirement system is 39 percent funded. It is projected the city will need to pay almost $900 million into the pension fund by 2033.
To help the cause the city has created a reserve fund.
The Council voted unanimously to transfer $15 million from free cash to the pension reserve fund, bringing it up to $17 million. That will all be invested in U.S. Treasury Notes with the interest earned – calculated to be more than $700,000 – reinvested in the reserve fund, said the city’s Chief Administration and Finance Officer T.J. Plante.
“It sets us up to have resources available when the pension funding schedule could force us to make budget cuts, but it also looks good to Wall Street when we sell debt that we’ve authorized,” Plante said.
Last month, Mayor Sarno announced a similar investment strategy for the $44 million the city has in its “rainy day” account. The proceeds from that – estimated to be $2 million – will be used to reduce next year’s property tax levy.
