From the Town of Greenwich Retirement Board: With another Fiscal Year in the books, a reprise of the activities of the Retirement Board for Fiscal Year 2019 is in order. This past year was a dynamic period of change and accomplishments for the Retirement Board. It was the first full year that the Plan’s assets were managed by an outside investment manager, Neuberger Berman. The assumptions underpinning the valuation of the Plan and the Investment Policy Statement were examined and modified. In addition, the Retirement System has a new Retirement Administrator.
Under the management of Neuberger Berman, the plan experienced a Fiscal Year return of 8.78%. This return generated an unrealized $9 million gain for the plan, exceeding its benchmark by approximately 70 basis points, and was meaningfully above the expected return of 6.75% on plan assets. Additionally, and not unimportantly, this performance has been accomplished while also reducing total portfolio risk from a standard deviation of 14.6% to 14.0% year over year. All in all, the Retirement System had a very good financial performance this past fiscal year.
With the bull market now into its ninth year, the Retirement Board became increasingly concerned with the reasonableness of Plan assumptions. This past spring, Neuberger Berman revised downward by 70 basis points their outlook for the return one could expect from the capital markets going forward. With this information in hand, the Board undertook a very thorough and thoughtful review of the key assumptions underpinning the valuation of Plan assets and liabilities, as well as the Plan’s Investment Policy Statement. Over the course of four meetings, the Board examined a wide range of issues including but not limited to: the health of the plan, the funding ratio, the appropriate discount rate, the level of market risk acceptable to the Board, the proper amortization of losses, the cost to the taxpayers to fund the plan, and the reasonableness of capital asset market assumptions. Within this context, the Board unanimously agreed to lower the discount rate from 6.75% to 6.50%, with a view that further reductions may be necessary in the year ahead. The Board also changed the minimum period over which the gap between plan assets and plan liabilities should be amortized. Going forward the amortization period will be reduced from 15 years to 10 years (with a one-year reduction each year for the next five years). With these two major changes, the Board believes, and our Actuary confirms, the Town of Greenwich will have one of the healthiest Defined Benefit Pension plans in the State of Connecticut. We will enter the next fiscal year with a funding ratio close to 80%, with realistic demographic assumptions, a discount rate of 6.50% (among the lowest in the nation for public sector plans) and an amortization schedule that will cut the underfunded amount in half over the next 10 years.
This past fiscal year also witnessed a change in the Retirement Administrator. With the timing between departure and arrival of approximately five months, the prior plan experience of Employee Benefits Manager Alison Graham, and the assistance of Linda Culver were invaluable to the orderly processing of retirements for town employees. The Board now welcomes Ken Berkson as Retirement Administrator who has experience and an excellent skill set highly suitable for the mission ahead.
The Board looks forward to the year ahead and the challenges it will bring. Underway is a transition from the existing record-keeper to a new record-keeper and benefit payment provider, and with that, a thorough review of all employee records. Before the BET is a proposal to change the Plan’s Custodian, and if successful, should save the plan directly, and the taxpayers indirectly, anywhere between $1.5-$2.5 million dollars over the decade ahead. More importantly, the proposed change will allow for manager selection by Neuberger Berman on a more efficient, timely and flexible basis which may lead to better performance for plan assets. Also, a review of Policy and Procedures is long overdue. With these initiatives ahead, and the positive changes that have taken place over the past year, the Board is confident that the two goals of exceptional service to system participants and acceptable portfolio performance to risk tolerances will be achieved.
Finally, appreciation goes to all the members of the Board who have been diligent in their review of retirements, Plan assumptions and investment decisions throughout the year. Also a special thanks goes to the BET and RTM Liaisons who offered objective and thoughtful advice as the Board tackled a number of challenging topics this past year.
Joseph L. Pellegrino, CFA
Chairman of the Retirement Board
For more information, contact Kenneth Berkson, Retirement Administrator to the Town of Greenwich Retirement Board, firstname.lastname@example.org.
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