Actuary urges layered amortization to smooth Norwalk pension contributions; board discusses but defers city decision

An actuarial consultant recommended that Norwalk adopt a layered amortization method for pension plan unfunded liabilities to reduce contribution volatility and protect the city budget from large short‑term spikes if the market suffers a major loss.

Using the police pension as an example, the consultant said the plan currently has an unfunded accrued liability of about $56.7 million with a remaining closed amortization of 13 years and an annual amortization payment near $5.36 million under the current method. The consultant modeled a hypothetical scenario with above‑average returns followed by a recessionary asset loss in 2030 and showed that, under the current closed‑period approach, the unfunded liability could grow to roughly $70.8 million with a much shorter remaining amortization and a very large contribution spike (modelled as a $24 million payment in the demonstration).

Under the recommended layered approach, the original unfunded balance would continue to amortize on its existing schedule while subsequent experience gains and losses would be isolated in new “layers” amortized over longer periods (for example, 15 years), producing a blended amortization period and materially lower year‑to‑year volatility in required contributions. The consultant described the approach as a growing industry practice and said many public plans have shifted to layered amortizations as closed, long‑ago cohorts reach shorter remaining amortization periods.

The actuary also proposed assumption changes based on the experience study for retirement timing, mortality, termination and disability rates. For the city plan, the consultant said the package of recommended changes would modestly improve the funded ratio (the consultant showed the city plan’s funded ratio rising from 77.8% to about 79.1% on the presented adjustments) and would reduce the contribution in the modeling. For police and fire plans, the recommended retirement and disability assumption updates increased liabilities because recent retirements and disabilities had occurred earlier or more frequently than the board’s prior assumptions allowed.

Trustees discussed the fiscal trade‑offs. Several board members noted the layered approach reduces the risk of a short‑term, large contribution spike at the cost of somewhat higher near‑term payments, and asked whether the pension board or the city administration ultimately decides to adopt the method. The consultant and trustees agreed the decision is for the city (finance and the mayor) rather than the pension board itself; the board may provide a recommendation. A trustee summed up the procedural point: the actuary’s recommendation is information for the board and the city—“it can only be a recommendation,” one trustee said.

The actuary offered to provide more model scenarios and to deliver a written package for city staff to use in budgeting. Trustees asked staff to include the actuary’s recommended assumptions and the layered‑amortization analysis in the next valuation packet and to share the results with city finance, noting that any formal change would be processed through the city’s established decision‑making channels.