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Daily Five: Dissecting an Expensive State Policy Change

Five things to know for Wednesday, Jan. 16, 2013

1. Today, a mixture of rain, snow, freezing rain and sleet is predicted before 2, according to the National Weather Service. Tonight should be partly cloudy, with a low around 30, according to the service.

2. Monday, Patch learned something new and interesting in an interview with Finance Director Rudie Beers, which seems to be the case every time we interview Beers.

Beers said in 2001, the Municipal Employees Retirement (MERF) system was actually overfunded. MERF serves municipal employees in the town of Waterford but is completely controlled by the state, and there is no municipal representation on the board that controls MERF.

MERF relies heavily on investment income to make money. The idea is employees pay a certain percentage of their salary to the fund and the town pays a certain percentage of an employee's salary in additional money to the fund, and that money is invested. If the market is strong, that means both employees and the town have to pay less. It is worth noting that MERF is a defined benefit plan compared to a defined contribution plan, which means it has to be funded to hit a certain level of promised benefit to the employee.

Anyway, as I said, in 2001 MERF was actually overfunded, thanks to a strong market bringing in a lot of investment income. At that time, fire and police employees were paying 2.25 percent of their salary into the system and the town was paying less than 4 percent of salary.

At that time, the state was so confident it would continue to gain 8 percent investment income annually, it expanded the program. Specifically, it allowed an employee to be vested in the program after five years, instead of 10 (which means they qualify for a retirement after five years of working for a municipality instead of ten), according to Beers. Also, the retirement is based off of how many years an employee works, but the state changed what it considered years worked, she said. Now, employees could count military service to that time and even unpaid positions, such as being elected to a town board, as years of service, she said.

Beers, who at that time was Stonington’s director of finance, was outraged, and said those changes would cost a tremendous amount of money. She was right.

Now, for fire and police employees, the town pays an additional 16.65 percent of salary to an employee's retirement plan, and the employee still only pays 2.25 percent. That is largely because investment income has gone from 8 percent a year to 1 percent, thanks to a poor market, Beers said. But it is also because more people qualify for the program and more years are added to people who do qualify because of the reasons stated above, she said.

Anyway, just an interesting look in how policy decisions can have long-term effects on budgets, taxes and the service level a town can offer. For more information about municipal retirements and some complaints Waterford's Board of Finance has about them, click here.

3. Tuesday, Pratt & Whitney, which is one of Connecticut’s largest employers, announced it was laying off 200 salaried employees in its Middletown and East Hartford locations. For more information, click here.   

4. Tonight there are two town meetings that are open to the public. The Youth Service Advisory Board meets at 5:30 p.m. in the Youth Services Bureau's building and the Economic Development Commissions meets at 6:30 p.m. in Town Hall.

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5. On this date in 2006, Ellen Johnson Sirleaf was sworn in as the president of Liberia, becoming Africa’s first female elected head of state. And on this date in 1919, the United States Senate ratified the 18th Amendment, which made it illegal to sell, transport or manufacture alcohol.

Quote of the Day

“The reports of my death have been greatly exaggerated.”

-Mark Twain

Trivia of the Day

On this date in 2001, President Bill Clinton awarded this former president a posthumous Medal of Honor for his service during the Spanish-American War. What former president was it?

Yesterday’s Answer: James Naismith first published the rules of basketball in 1892, and is credited for inventing the sport.

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