2024-03-25: Retirement Board Educational Forum

Click timestamps in the text to watch that part of the meeting recording.

Swampscott Retirement Board Educational Forum Analysis (March 25, 2024)

This document summarizes and analyzes the Swampscott Retirement Board Educational Forum held to inform Town Meeting members, town employees, and the public about the Swampscott Contributory Retirement System.

1. Agenda

Based on the transcript, the likely agenda for the educational forum was:

  1. Call to Order & Opening Remarks 0:02:16
    • Introduction by Chair Tom Driscoll
    • Purpose of the Educational Forum (Transparency, Education for Town Meeting/Community)
    • Confirmation of Open Meeting Law Compliance & Roll Call
    • Instructions for Q&A (Email/Teams Chat)
  2. Swampscott Contributory Retirement System Overview 0:05:01
    • Governing Law (MGL Chapter 32)
    • Board Structure and Membership (Ex-Officio, Select Board Appointee, Elected Members, Community Member)
    • Board Independence and Fiduciary Duty
    • System History (Established 1937)
    • Current Membership Statistics (Active, Retired, Inactive) 0:08:27
    • Typical Board Meeting Activities (Minutes, New Members, Retirements, Transfers, Payroll, Financials, COLA, Investment Reviews, Member Issues, RFPs, Town Meeting Warrants) 0:09:17
  3. Participant & Funding Details 0:14:18
    • Active & Retired Participant Demographics (Provided by Actuary - Siegel Associates)
    • System Funding Sources (Employee Contribution Tiers, Employer Contribution/Appropriation) 0:16:47
    • Unfunded Liability and Funding Schedule (Goal: Fully Funded by 2031) 0:19:48
    • Income & Expenses Overview (Market Value Fluctuation Example) 0:22:18
    • Investment Return Expectations / Discount Rate 0:27:09
  4. Retirement Eligibility & Calculation 0:28:35
    • Eligibility Benchmarks (Pre/Post April 2, 2012)
    • Benefit Calculation Formula Overview (Pre/Post 2012) 0:29:57
    • Example Calculations 0:30:48
  5. Retirement Options & Related Issues 0:31:35
    • Superannuation Retirement Options (A, B, C, Pop-up C, D)
    • Windfall Elimination Provision (WEP) Overview & Impact on Social Security 0:34:51
    • Government Pension Offset (GPO) Overview & Impact on Spousal Social Security Benefits 0:39:04
    • Board Member Reflections on System Growth and Value 0:40:32
  6. PERAC Overview 0:41:57 (Presented by John Barr, PERAC Executive Director)
    • PERAC Role (Regulatory Oversight, Guidance)
    • PERAC Commission Structure
    • Key Responsibilities (Disability Approvals, Financial Reviews, Investment Oversight, Education, Data Analysis, Compliance, Legal Opinions, Legislation)
  7. Actuarial Overview 0:47:20 (Presented by John Borak, Segal Consulting)
    • Role of an Actuary
    • Actuarial Valuation Process (Snapshot, Liabilities vs. Assets, Normal Cost, Accrued Liability, Unfunded Liability) 0:48:07
    • Funding Schedule Development and Approval
    • Actuarial Assumptions (Economic & Demographic) 0:50:28
    • Swampscott’s Funded Status Context (71% Funded, Rank ~70th, On track for 2031) 0:51:30
  8. Investment Consultant Overview 0:53:45 (Presented by Michael Dwyer & Jeffrey Fabrizio, Wainwright Investment Counsel)
    • Role of the Investment Consultant
    • Investment Process (Policy Statement, Strategic Asset Allocation) 0:54:09
    • Importance of Asset Allocation
    • Manager Search and Selection Process (RFP, Due Diligence, PARAC Ratings) 0:57:22
    • PRIM / PRIT Fund Overview (Diversification, Scale Benefits) 1:03:06
    • Swampscott’s Use of PRIT vs. Direct Investments 1:06:14
  9. Legal Counsel Overview 1:07:30 (Presented by Michael Sacco, Retirement Board Counsel - via phone due to technical issues 1:22:43)
    • Role of Board Counsel (Day-to-day Advice, Legal Interpretation, Contract Review, Litigation) 1:23:17
    • Representation in Litigation (Benefit Denials, Appeals)
    • Policy Development Assistance
    • Expertise in Complex Pension Law (MGL c.32, Case Law)
    • Appeal Process Overview (DALA -> CRAB -> Superior Court -> Appeals Court -> SJC) 1:28:33
  10. Question & Answer Session 1:11:30
    • Question from Eric Schneider (FinCom Member) re: Unfunded Liability Origins/Prevention, Future Investment Risk 1:11:30
    • Question from Jerry Caron (Retiree) re: Retiree Representation and Communication 1:36:10
  11. Closing Remarks & Adjournment 1:32:51
    • Board Member Powell on COLA Base Increase Criteria
    • Chair Driscoll on Availability of Recording & Thanks
    • Motion to Adjourn 1:40:00

2. Speaking Attendees

  • [Speaker 1]: Tom Driscoll (Retirement Board Chair)
  • [Speaker 2]: Johnny Bean (Retirement Board Member - Elected, Police Lieutenant)
  • [Speaker 3]: John Borak (Actuary, Segal Consulting)
  • [Speaker 4] / [Speaker 15]: Michael Sacco (Retirement Board Counsel) (Note: Speaker 15 is Sacco speaking via phone)
  • [Speaker 5]: Jeffrey Fabrizio (Director of Research, Wainwright Investment Counsel)
  • [Speaker 6]: Bob Powell (Retirement Board Member - Appointed by Board)
  • [Speaker 7]: Kevin Breed (Retirement Board Member - Elected, Fire Chief) (Inferred based on board structure description and presentation content)
  • [Speaker 8]: John Barr (Executive Director, PERAC - Public Employee Retirement Administration Commission)
  • [Speaker 9]: Amy Sorrow (Town Accountant, Ex-Officio Retirement Board Member)
  • [Speaker 10]: Michael Dwyer (Senior Consultant, Wainwright Investment Counsel)
  • [Speaker 11]: Jerry Caron (Retiree, Public Commenter)
  • [Speaker 12]: Eric Schneider (Finance Committee Member, Public Commenter)
  • [Speaker 13]: Nancy Lord (Retirement System Administrator) (Inferred based on role description and context)
  • [Speaker 14]: Tracy Spear (Assistant Administrator) (Inferred based on role description and context)

3. Meeting Minutes

Call to Order & Opening Retirement Board Chair Tom Driscoll called the educational forum to order 0:02:16, explaining its purpose: to educate the community, Town Meeting members, and employees about the Swampscott Contributory Retirement System, particularly how the town’s significant budget contribution is determined. He noted the session would be recorded and available online. Chair Driscoll confirmed compliance with the Open Meeting Law and conducted a roll call, confirming members Driscoll, Powell, Bean, Sorrow, and (implicitly) Breed were present. Instructions for submitting questions via email or Teams chat were provided 0:05:01.

Retirement System Overview Chair Driscoll detailed the board’s structure under MGL Chapter 32, identifying the members and their appointment/election methods 0:06:10. He emphasized the board’s independent fiduciary duty to members and beneficiaries, separate from town government operations except for the town’s funding obligation 0:07:45. Member statistics (235 retirees, 240 active, 214 inactive as of the meeting) were shared 0:08:27. Chair Driscoll outlined typical board meeting activities, including reviewing minutes, approving new members and retirements, handling fund transfers, processing payroll and expenses, managing COLA considerations 0:11:40, receiving quarterly investment reviews, addressing member issues, conducting vendor RFPs, and bringing necessary warrant articles to Town Meeting [0:09:17 - 0:13:47].

Participant Data & Funding Board Member Kevin Breed presented demographic data from the 2022 actuarial study, including average age, service years, and compensation for active members, and average age and benefit amount for retirees 0:14:18. He explained the tiered employee contribution system based on hire date, noting current employees contribute significantly (up to 9% + 2% over $30k, effectively 11% for many) 0:17:29. Board Member Bob Powell discussed system funding, focusing on the goal of paying off the unfunded liability to reach full funding by 2031 0:19:48. He outlined the current funding schedule, involving employer normal cost and amortization payments, increasing 5% annually, constituting roughly 8% of the town’s budget 0:20:50. He presented a two-year comparison of income/expenses, noting market volatility’s impact (assets $87M end of 2021, $78M end of 2022, recovered to $84M by meeting date) 0:22:18. He explained the use of smoothed asset values by actuaries and the board’s setting of the investment return assumption (lowered to 7%) 0:27:09. Town Accountant Amy Sorrow clarified that the 5% funding schedule increase is allocated across the General Fund, Housing Authority, and Water/Sewer Enterprise Funds 0:28:35.

Retirement Eligibility & Calculations Town Accountant Sorrow detailed the two main retirement eligibility tiers based on membership date (pre/post April 2, 2012), outlining differences in minimum age (55 vs. 60 for Group 1) and averaging period (3 vs. 5 years) 0:29:18. She briefly showed the calculation formulas and examples for each tier [0:29:57, 0:30:48].

Retirement Options & Related Issues Board Member Johnny Bean explained the key superannuation retirement options (A, B, C, Pop-up C, D), emphasizing the irrevocability of the choice and the implications for beneficiaries 0:31:35. He provided detailed explanations of the Windfall Elimination Provision (WEP) 0:34:51 and Government Pension Offset (GPO) 0:39:04, federal rules that can significantly reduce Social Security benefits for public pensioners and their spouses, using concrete examples. He reflected on the board’s long-term efforts, noting the fund’s growth from ~$32M (42% funded) to ~$84M (70% funded) during his and Chair Driscoll’s tenure 0:40:32.

PERAC & Actuarial Presentations John Barr, Executive Director of PERAC, outlined the commission’s role in regulatory oversight, guidance, setting policy, approving disability retirements, reviewing financials, providing education, interpreting statutes, and monitoring compliance across the 104 state systems 0:42:00. John Borak, the board’s actuary from Segal Consulting, explained the function of an actuary and the annual valuation process, which determines the plan’s funded status and the required contributions via a funding schedule 0:48:07. He discussed economic and demographic assumptions used 0:50:28 and contextualized Swampscott’s 71% funded status as roughly average among MA systems, confirming the 2031 target for full funding 0:51:30.

Investment & Legal Counsel Presentations Michael Dwyer and Jeffrey Fabrizio from Wainwright Investment Counsel, the board’s recently hired advisors 1:09:12, described their role 0:54:09. They explained the importance of strategic asset allocation (driving >90% of long-term returns) and their process for developing policy and selecting managers via RFPs 0:57:22. Mr. Fabrizio detailed the diversified nature of the state’s PRIT fund, where Swampscott invests a significant portion (~53%) of its assets, leveraging its scale and diversification 1:03:06. Chair Driscoll noted the board also invests funds outside PRIT, aiming to outperform it 1:06:14. Michael Sacco, Retirement Board Counsel for 30 years, joined via phone after technical difficulties 1:22:43. He outlined his role providing legal advice on MGL c.32, case law, regulations, contracts, and representing the board in litigation, primarily benefit appeals 1:23:17. He described the multi-level appeal process (DALA, CRAB, Courts) 1:28:33.

Question & Answer Session Eric Schneider, Finance Committee member, thanked the board for the educational session 1:11:30. He asked how the unfunded liability originated, how to prevent it recurrence, and if market downturns could create new liabilities post-2031. Actuary Borak explained the history of pay-as-you-go funding and the statutory requirement for pre-funding since the late 80s/early 90s 1:14:27. He confirmed that investment losses can create new unfunded liabilities even after reaching 100% funding and suggested strategies like conservative asset allocation post-funding or building a surplus buffer [1:13:23, 1:17:35]. PERAC Director Barr added this history applied to all systems and noted benefit changes for post-2012 hires help control costs 1:16:31. Chair Driscoll added that perhaps Swampscott could have been more aggressive with contributions over the years compared to some towns 1:20:05. Jerry Caron, a retiree, asked about retiree representation and communication channels with the board and fellow retirees, referencing a perceived lack of adherence to the spirit of a 2015 agreement 1:36:10. Chair Driscoll noted member contact info is confidential 1:38:16. Town Accountant Sorrow suggested using the Retirement Board’s Facebook page for retirees to connect 1:38:48. Board Member Powell mentioned potential future retiree fairs 1:39:00. Mr. Caron also asked for an annual summary of the board’s expense warrant, which Ms. Sorrow directed him to request from the Retirement Administrator 1:39:28.

Closing Remarks & Adjournment Board Member Powell reiterated the board’s criteria for considering future COLA base increases: inflation impact, funded ratio relative to peers, and COLA base relative to peers 1:32:51. Chair Driscoll thanked participants and confirmed the recording’s availability 1:35:09. The meeting was adjourned following a motion by Member Powell, seconded by Member Sorrow, and approved unanimously 1:40:00.

4. Executive Summary

The Swampscott Retirement Board held an educational forum on March 25, 2024, to provide transparency and understanding of the town’s Contributory Retirement System, particularly for Town Meeting members who vote on its significant budget appropriation.

System Overview & Funding:

  • The Swampscott Contributory Retirement System operates under Massachusetts General Law Chapter 32 and is overseen by a five-member board with a strict fiduciary duty to its members (currently 240 active, 235 retired/beneficiaries) [0:06:10, 0:08:27].
  • The system’s funding comes from employee contributions (tiered based on hiring date, up to 11% for recent hires) and employer contributions (appropriated annually by the town) 0:17:29.
  • The system currently holds approximately $84 million in assets 0:23:56 and is 71% funded, ranking around average statewide 0:51:30.
  • Significance: The annual town contribution is the second largest item in the town budget 0:02:16. The board follows a state-mandated funding schedule aiming to reach 100% funding (eliminate the ~$36M unfunded liability) by 2031, requiring annual contribution increases (currently 5%) allocated across the General Fund and enterprise funds [0:19:48, 0:28:35]. Even after 2031, the town will still need to contribute the “normal cost” (estimated ~$1.2M annually) 0:19:48.

Key Issues Discussed:

  • Unfunded Liability: This liability largely stems from the historical statewide practice of “pay-as-you-go” funding, only rectified by legislation requiring pre-funding starting in the late 1980s/early 1990s 1:14:27. Finance Committee member Eric Schneider questioned how this occurred and how to prevent recurrence 1:11:30. Actuarial consultant John Borak noted that future market losses could create new unfunded liabilities even after 2031 1:13:23.
  • Investment Strategy: The Board employs Wainwright Investment Counsel 0:54:09 and utilizes a diversified strategy, investing significantly (~53%) in the state’s large PRIT fund for scale and diversification, while managing other assets directly with the goal of potentially higher returns [1:03:06, 1:06:14]. The assumed long-term investment return is 7% 0:27:09. Market volatility impacts asset values year-to-year 0:23:56.
  • Benefit Structure: Benefits vary significantly based on hiring date (pre/post April 2, 2012), affecting retirement age and calculation methods 0:28:35. Federal rules (WEP and GPO) can substantially reduce expected Social Security benefits for retirees and spouses, an important factor for financial planning [0:34:51, 0:39:04].
  • Cost of Living Adjustments (COLA): The board can grant COLAs, currently based on the first $14,000 of a pension 0:11:40. Board member Bob Powell outlined criteria (inflation, funding status vs peers, COLA base vs peers) for potentially requesting Town Meeting approval to increase this base in the future, acknowledging the potential budget impact 1:32:51.
  • Retiree Communication: Retiree Jerry Caron raised concerns about organized communication channels for retirees 1:36:10. Board responses pointed to privacy constraints and existing resources like a Facebook page [1:38:16, 1:38:48].

Overall: The forum provided a comprehensive overview of the system’s governance, funding mechanics, actuarial status, investment approach, and legal framework. It highlighted the board’s progress toward full funding by 2031 while acknowledging ongoing financial obligations and potential future risks like market downturns and the need to balance retiree benefits (like COLAs) with taxpayer burden.

5. Analysis

This educational forum appeared successful in its goal of providing detailed information about the complex Swampscott Contributory Retirement System. Grounded solely in the transcript, the following analysis can be made:

  • Board Presentation & Tone: The Retirement Board members presented a knowledgeable and unified front. Chair Driscoll effectively framed the session’s purpose, emphasizing transparency 0:02:16. Members Driscoll and Bean leveraged their long tenure (30 and 28 years, respectively) to provide historical context and demonstrate commitment 0:40:32. Member Powell clearly articulated the financial mechanics and challenges 0:19:48, while Member/Town Accountant Sorrow connected the system to the town’s budget structure 0:28:35. The tone was generally informative and procedural, emphasizing fiduciary responsibility 0:07:45 and adherence to MGL c.32.
  • Use of Experts: The inclusion of PERAC Director Barr 0:42:00, Actuary Borak 0:48:07, Investment Consultants Dwyer and Fabrizio 0:54:09, and Board Counsel Sacco 1:23:17 lent significant technical credibility to the presentation. Their explanations provided validation for the board’s approach and situated Swampscott’s system within the broader state context. This strategy effectively bolstered the board’s position on managing a complex, highly regulated entity.
  • Addressing the Unfunded Liability: The explanation provided for the unfunded liability – primarily blaming the historical statewide “pay-as-you-go” system 1:14:27 – is a standard and factually accurate defense used by many MA retirement boards. While addressing the “how it happened,” it perhaps sidestepped the Finance Committee member’s implicit question about specific past Swampscott decisions that might have contributed, beyond Chair Driscoll’s brief comment about potentially lacking past aggressiveness in contributions 1:20:05. The discussion about potential future liabilities due to market risk 1:13:23 was candid and important for managing expectations about the post-2031 landscape.
  • Effectiveness of Key Arguments:
    • The Board effectively argued that the path to full funding is structured and legally mandated [0:19:48, 1:14:27], shifting focus from past issues to the current plan’s execution.
    • The explanations of WEP/GPO by Member Bean [0:34:51, 0:39:04] were clear and impactful, serving as a crucial piece of financial education for members, though tangential to the system’s funding itself.
    • Finance Committee Member Schneider’s questions 1:11:30 were effective in voicing taxpayer concerns about historical burden and future risk, prompting detailed technical responses but perhaps not fully resolving the underlying concern about preventing past “mistakes.”
    • Retiree Caron’s question about representation 1:36:10 highlighted a potential disconnect. While the board’s responses about confidentiality 1:38:16 and existing social media 1:38:48 were practical, they didn’t directly address the desire for a more formal channel or board facilitation of retiree group communication, possibly reflecting legal constraints or a narrow interpretation of the board’s role beyond administration.
  • Meeting Dynamics: The forum was primarily informational, with a cooperative dynamic during the presentation phase. The Q&A introduced necessary scrutiny from the Finance Committee perspective and highlighted specific constituent needs from the retiree perspective. The technical difficulties with Board Counsel Sacco’s audio 1:08:01 were a minor disruption but ultimately overcome. The board appeared well-prepared to handle technical questions, relying appropriately on their actuary and PERAC representatives.
  • Overall Impression: The board successfully projected an image of competent stewardship within a complex legal and financial environment. They clearly communicated the plan towards achieving full funding by 2031 while subtly managing expectations about ongoing costs and potential future challenges (market risk, COLA pressures). The forum served as a valuable, albeit dense, information resource for engaged residents and Town Meeting members concerned with this major component of the town’s finances.