Actuary recommends changes to Norwalk pension assumptions, suggests separate amortization for new gains/losses; trustees defer vote

An actuarial presentation at the Feb. 12 Norwalk City pension boards meeting proposed multiple changes to long‑term assumptions and to the amortization approach used to pay down unfunded liabilities. The consultant said trustees should consider (1) lowering the inflation assumption to 2.5 percent, (2) keeping the investment rate of return at 6.5 percent, (3) adopting the Public 2010 family of mortality tables with Connecticut adjustments, and (4) keeping the current legacy closed amortization schedule for existing bases while amortizing any new gains or losses on separate closed bases (the consultant recommended a new base length of 15–20 years).

Dan, the lead actuary from CABMAC (Kavanaugh McDonald), told trustees that an experience study reviews all assumptions that feed valuation reports: "What is an experience study? ... it's basically all of the assumptions that go into the valuation reports." He said the firm typically performs these reviews on a five‑year cadence and that the current presentation covered a four‑year period because 2024 census data were not available in time.

On inflation and investment return, CABMAC proposed a slight reduction to a 2.5 percent inflation assumption and recommended keeping the nominal investment return at 6.5 percent, which the firm described as conservative relative to a long‑term horizon survey and median plan practice. The consultant explained the 6.5 percent nominal assumption is derived from a building‑block approach (proposed 2.5 percent inflation plus a roughly 4.0 percent real return) and noted the pension boards have already moved down from higher discount rates in prior years.

The actuary recommended replacing the RP‑2014 mortality table currently used with the Public 2010 family of mortality tables (adjusted for Connecticut experience), citing improved public‑sector coverage and better alignment with regional mortality trends.

For amortization of unfunded actuarial accrued liabilities (UAAL), the consultant proposed keeping the existing legacy closed amortization bases on their current path (13 years remaining in the closed bases as of the 2023 valuations) while establishing separate closed amortization bases for any new gains or losses to reduce short‑term contribution volatility. CABMAC suggested a 15–20 year closed period for new bases; the firm warned that very short periods (for example, five or ten years) increase contribution volatility and very long periods (such as 25 years) are not recommended.

The firm also recommended modest changes to demographic assumptions in some plans: increasing termination/withdrawal and retirement rates to reflect recent experience in the police plan (and adding assumed retirements at age 48 for the fire plan), and increasing police disability rates to match observed experience.

CABMAC provided estimated numeric impacts: the city's main plan would see a slight UAAL decline (from $63 million to $58 million) and a roughly $300,000 reduction in the recommended contribution under the proposed changes; the food services plan showed a small reduction; the police plan's liability would increase by about $4 million and the actuarially determined employer contribution (ADEC) would rise by roughly $500,000; the fire plan's liability would increase and its ADEC would rise by roughly $420,000. CABMAC said aggregate additional contribution pressure from all proposed changes would be modest (about a half‑million dollars across plans in the consultant's summary), with the largest upward pressure driven by mortality adjustments and police retirement/termination experience.

Trustees asked for additional sensitivity analysis and for split impact tables showing the separate effects of mortality, retirements, and amortization changes. The boards did not adopt the recommendations at the meeting; staff noted the actuarial proposals had not been noticed for a formal vote and placed the items on a future agenda for formal consideration.

Dan: "Any new gains and losses would be spread over their own closed amortization period... it helps with the volatility that could occur in the contribution requirements."