Another Bad Moon Rising?

The recent article in the Salem news highlights a little known situation which, while not unique to Peabody at all, still will have a severe impact on our near-term, and long-term fiscal viability.

Salem News: Retirement Assets dip as market fails

Now, I will begin this post with a big admission... I don't know much about this... not much more than I read in the SNews.

The story in a nutshell - and feel free to let me know if I am getting this wrong somewhere...

Cities are required to fund the accounts that they plan to use to pay for employee retirement. However, they don't actually put in the $50 each week that employee X and Y are going to get in 10 or 15 years.

No. That would be logical. And safe.

So the Cities PROMISE that they will have the money for the retirees WHEN THEY RETIRE... but not before. In other words, the City will use these funds to do as they please (now I am sure that some is set aside for the retirees) but they don't need to come up with it until they actually retire.

This was a good scheme... until somebody noticed (or maybe someone retired somewhere and the City didn't have the dough?).

So the powers that be enacted a deadline (2028) where by the City must be fully funded for all retirees.

But the Cities didn't really want to put all their (our) money in the retirees bank accounts... they wanted to Play the Market and make a profit so we would have more funds to spend on City needs.

Unfortunately things are not so pretty in the market... in fact the S&P 500 has averaged -1.59% since 2000.... and is down -37% for 2008.

So... in order to still be able to meet the 2028 deadlines, all the Cities and Towns are going to need to be putting in even more tax money into these retirement accounts to make up for the bad investments made over the past few years. This is going to result in EVEN LESS WORKING CAPITAL FOR THE CITY.

Again, this is not problem unique to Peabody, nor was the fancy financial solution... in fact, it probably kept our level of taxes lower and services higher over the past several years... but it just adds one more straw to the camels back... and the sag is already starting to show LOTS of strain.