Monday, September 24, 2007

My Response to Kostes: "Leave the Pension Fund Alone"

After reading Lynda Wellman’s article in the Spectrum, I now understand what mayoral hopeful Bob Kostes meant when he said that he is a “fiscal conservative but a social liberal.” It means that he will watch his own money very carefully but spend yours loosey-goosey.

This one-issue candidate’s comments about the pension fund show that he is uninformed, ill-advised and knows nothing about the history of the Town’s pension investments.

In the mid-1960s, the Town established a Pension Plan with John Hancock with the help of the late Clarence Mitchell, a resident who was a Hancock representative.

In 1994, during the Furhman administration, former Councilman Tom Pilla encouraged the Town Council to form a Pension Committee to examine the Town’s investment strategy and the possible lowering of the actuarial cost to the Town. The motivation was that pension funding had about a 2 mil tax impact. The budgeted actuarial was about $1,500,000 when one mil was equal to about $800,000. This Council Committee consisted of Finance Director Ray Jankowski, Tom Pilla, Guy Peterson, Charles Barlow and others.

During the Peitler administration, Committee Member Bob Sherry brought in a consultant -- an experienced risk manager -- who advised the Committee and thereafter made a presentation to the Council.

The Pension Committee investigated changing to a new fund manager but could only do so if it agreed to pay an exit fee in excess of $500,000. Instead, the Committee opted for a new investment strategy, electing a 60/40 ratio of securities to bonds. Approximately $6,000,000 was placed into fixed assets with a guaranteed and consistent return to secure the existing pensions.

The following year, the actuarial cost dropped from the $1,500,000 to about $800,000 and in the second year it dropped to $600,000, a great savings to the taxpayers. Since then, there has been exponential growth, saving millions of taxpayer-dollars in pension funding.

As Lynda Wellman reported, the Fund has experienced growth of almost $12,000,000 since Mayor Murphy took office, rising from $22,000,000 then to $33,860,000 this past July. And Kostes’criticism doesn’t take into account the pension betterments that have also affected performance.

The best news is that, unlike those of many states and municipalities, New Milford’s Pension Fund is fully funded. Why? The Town invested conservatively, thereby avoiding market volatility. It rejected the push into hedge funds and other non-traditional investments that led to the huge losses that other funds have suffered.

Obviously, this is great news for everyone: our retired municipal workers who are depending on their pensions to pay for their golden years, those who will retire and the taxpayers who fund the system.

Readers should note that New Milford First’s own Bob Gambino didn’t even address the pension plan during his entire tenure as Mayor. Although himself the recipient of a pension, I’m not sure he knew that the Town has a Pension Fund.

Mr. Kostes is free to chase down another Enron for his own investments but it scares me to think that he’d like to do the same for those who now participate in the Town’s pension plan and those who will be. Leave the pension fund alone.

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