nothin Hamden Reduces Pension Benefits For Overpaid… | New Haven Independent

Hamden Reduces Pension Benefits For Overpaid Pensioners

Sam Gurwitt Photo

Mayor Curt Leng, last year.

After a year of discussions and reports, the Hamden Employees Retirement Board voted Wednesday to reduce the monthly pension benefits of 620 retirees who were overcompensated because of a decades-long payroll error.

Starting in September, pre-2015 retirees will see their monthly benefit drop, in many cases by hundreds of dollars. A few will see their pension benefits reduced by over 10 percent.

The change is a correction to past overpayments the town made to pensioners in their cost-of-living adjustments (COLAs).

Up until 2007, new hires participated in a town-run pension plan. In 2006 and 2007, the town closed the plan to new entrants and put all new hires in the Connecticut Municipal Employees Retirement System (CMERS), which is managed by the state. Anyone who was hired before 2007, though, is still paid out of the town’s plan when they retire.

The town’s pension is supposed to give a COLA each year that matches growth in the consumer price index (CPI) — a measure of inflation — up to 3 percent. That is, in years when CPI growth is lower than 3 percent, retirees get COLAs that match the CPI. In years when CPI growth tops 3 percent, pensioners get 3 percent COLAs

For decades, starting mostly in the 1990s, the town paid pensioners COLAs of 3 percent even though the CPI dipped below 3 percent and has remained there for the most part for the last 30 years. Some of those 3 percent COLAs were warranted, as the pension plan’s language allowed for a bank” that would apply CPI excesses over 3 percent to future years when the CPI was under 3 percent so pensioners could continue getting 3 percent COLAs even in those years. But the 3 percent COLAs continued across the board, even once banks” had been exhausted.

The town caught the error in 2013 and started giving the appropriate COLAs then, but the damage was already done. Read more about the COLA error here.

In June, Segal Consulting presented the board with a report outlining the past overpayments. In total, the report showed, the town overpaid $12.3 million to about 620 retirees or spouses of deceased retirees. It outlined a few proposals for recouping those past overpayments.

But the $12.3 million in past overpayments is not the only piece of the puzzle. Before trying to recoup that, the board opted to ensure that pensioners would not continue to be overpaid in the future.

Though the town started paying the correct COLAs in 2013, it did so on top of base pension amounts that were already larger than they should have been because of years of overpaid COLAs. That means that current pension benefits for 620 employees are higher than they should be had the plan been administered correctly. So, the first step was to reduce current benefits to what they should be under the plan’s terms, regardless of any COLA recoupments.

That was the step the board took Wednesday. Starting in September, retirees will all receive the amounts they would if the town had never made the COLA mistake in the first place. The board’s action Wednesday does not do anything to try to recoup the $12.3 million in past overpayments. That will have to happen at another meeting.

Segal presented a few options for reducing current benefits to their correct amounts Wednesday. The town could simply reduce the benefits all at once, or it might be able to reduce in phases. The board opted to make one reduction, rather than using a phased approach.

After coming out of an hour-long executive session to discuss the board’s legal fiduciary responsibilities, the board members appeared convinced that they had an obligation to reduce benefits. Fire Chief Gary Merwede said he was not sure the board even had the option of doing anything other than reducing benefits immediately.

Board attorney Marc Wallman has told the board many times that it is responsible for administering the plan correctly, and that means it must correct past mistakes.

As Mayor Curt Leng put it, The word’s obligation,’ and we have an obligation to make the action. And frankly it’s whether we like it or not.”

Zoom

Wallman, on the Zoom teleconferencing app.

It also would have been costly to make the reduction in multiple installments. As Wallman and Personnel Director Ken Kelley told the board, each time the town changes benefit amounts, there is a charge from the company that cuts the checks that go to pensioners. Making multiple reductions would mean paying that charge multiple times.

The board’s action Wednesday has cost saving benefits for the town. Because it reduces the amount of future benefit payments, it reduces the pension plan’s net liabilities from $464.4 million to $455.2 million, lowering unfunded liabilities from $299.3 million to $290 million.

That liability reduction has immediate positive consequences for the town’s finances. It means the town can reduce its annual pension payment this year by about $640,000. The town was supposed to pay $23.2 million into the pension in the current fiscal year. It can now pay an estimated $22.6 million.

But the benefit reductions also have immediate, sometimes drastic consequences for retirees.

Some pensioners will see large chunks of money taken out of their monthly pension payment starting in September.

The Segal report shows the average benefit and reduction for retirees in each retirement year. Some retirees will see minor reductions, like those who retired between 2011 and 2014, whose benefits will only reduce by a few dollars. Retirees in the 1990s, however, will take a hit of a few hundred dollars.

Pensioners who retired in 1991, for example, will see an average reduction to their monthly benefits of $309. The average monthly pension benefit for 1991 retirees is $3,234.

I don’t think this is a pleasant action,” said Leng after the vote. We don’t want to take money out of people’s pockets, but we have an obligation to do right by the plan.”

Retirees may still fight the board. Last week, the Hamden Guardian Services Retirees Association retained attorney Bill Ward to represent a growing group of retirees to fight the town and keep their COLAs.

Ward said he could not comment yet on what the group would do about Wednesday’s benefit reduction. The board did not try to recoup any past overpayments, and Ward said he needs to see how exactly the board did its reductions calculations before he can say what action he may take.

The town will be sending out letters in the next few weeks to retirees to inform them of the reductions in their pensions.

Next, the board will tackle the question of whether to go after past overpayments. While pensioners will start getting smaller benefits in September, they will still get a COLA next year. If the board opts to try to recoup the $12 million in overpayments, they may not see that COLA come May, or in some cases, ever again.

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