Town Saves $14 Million With Benefits Trust

Town Council voted unanimously Tuesday to establish a trust to fund retiree health benefits. The move takes advantage of recent changes to Government Accounting Board Standards (GASB) rules allowing the town to set up a trust for the first time, and is expected to save New Canaan nearly $14 million over the next 30 years. 

Until now, the town has only been able to invest its pension assets in government-backed securities with an assumed 4 percent yield, requiring a contribution of $2.9 million annually to keep up with the liability. The trust provides access to the open market with an assumed 8 percent yield, cutting the required contribution nearly in half, to $1.69 million. 

New Canaan currently pays out about $1.1 million a year for retiree health benefits; the upcoming fiscal year also sets aside $500,000 to cover future benefits, keeping the town about on par with the total contribution required with the trust. 

Chief Financial Officer Gary Conrad says with the trust set-up the town's contribution is, "either going to be flat or be on a declining basis going forward."

Most other municipalities, Conrad says, are continuing to cover benefits on a pay-as-you-go basis only. New Canaan's recognition of the future liability, he says, will give the town more brownie points with auditors and rating agencies and help it keep it's Triple-A rating. 

The trust will be started with the monies from the special revenue fund—valued at $3,493,271 as of March 31, 2010—where pension assets have been held up till now. The Board of Finance will pick a board from its membership to oversee the trust. The First Selectman, or his designee, will be responsible for investing the funds with the board's approval.