By Andreas Yilma, Staff Writer
NAUGATUCK — The Joint Boards of Mayor and Burgesses and Board of Finance on June 8 approved a resolution to bond up to $65 million to help fund pension obligations for retired employees.
Borough officials said the move aims to strengthen the pension fund by bonding at low interest rates.
“What this does is allows us to borrow money at a low rate and invest at a higher rate of return to be used to pay our pension (costs),” said Board of Finance Chairman Dan Sheridan, adding it will lead to long-term cost savings.
Officials anticipate bonding the money at a 3% interest rate, but earning 6% on the money by investing it. The difference between the interest paid on the bond and the interest earned through investing would pay the borough’s annual pension obligation, Sheridan said. He said the bond would be a 25-year period.
Controller Allyson Bruce said the borough’s pension obligations for retired and current employees are funded at about 70% at $145.9 million. The borough’s total pension liability is about $206.4 million, she said.
Bruce said the borough is making contributions to its pension fund every year to work up to 100%.
“We’re restructuring our debt in order to pay less,” Bruce said about the plan to bond. “We’re blessed to have a healthy pension fund. We’re just to make it healthier.”
Within the last 10 years, the borough has shifted all new municipal employees out of defined benefit pension plans. Instead, they get defined contribution pension plans, similar to a 401(K) in the private sector, in which both the employee and the employer contribute to the employee’s retirement. Many current borough employees still have defined benefit plans.
The state legislature and Gov. Ned Lamont have approved legislation authorizing the borough to bond for the pension fund. The bill was a formality needed before local officials could move ahead.
Sheridan said borough officials are aiming to go out to bond in August.