Investment advisor: pension and OPEB returns strong through September, Q4 pullback narrows gains

Chris Cashmark, the town’s investment advisor, told the Board of Finance on Jan. 21 that the town’s pension and OPEB portfolios produced “pretty good” capital‑market outcomes through September but experienced a pullback in the fourth quarter that trimmed some earlier gains.

Cashmark said fixed‑income returns fell in Q4 — “Bonds actually in the third fourth quarter alone…were down about 3%” — and global equities stepped back about 1%. He told the board the town’s 6.5% long‑term return assumption for its pension plans remains consistent with statewide practice and “we don’t think there’s any issues with the 6 and a half percent number.” Funded ratios across the town’s three plans were described as in the mid‑70s.

Why it matters: return assumptions and funded status drive actuarial contributions and budgeting for the town and school pension plans. The board heard that keeping realistic assumptions helps stabilize employer cost projections and long‑term planning.

Highlights from the presentation: - Performance pattern: Cashmark summarized the year as “by and large, a good portion of the year was very productive for capital market outcomes,” but he said the fourth‑quarter retrenchment erased some earlier gains. - Drivers: U.S. large‑cap technology names led equity performance earlier in the year; the advisor noted that equity valuations are “pretty full” heading into the new year and that fixed income yields jumped late in the year, producing the Q4 losses. - Return assumption and funded status: Cashmark said a 6.5% assumption is “very consistent statewide” and that the town’s funded statuses are roughly 70–80% across plans; he and his team will retest assumptions again for the pension subcommittee in February. - OPEB trust: the advisor noted the town’s OPEB trust is “well funded” (Cashmark said elsewhere the trust is about $25.5 million) and that the town has not typically drawn from the trust for retiree payouts but expects to begin reimbursing health‑insurance funds at fiscal year‑end. “We haven't been using the trust…now that it is a % funded, we'll be working to actually start using the trust for our retirement claims,” Cashmark said. - Manager and governance items: Cashmark described recent manager changes (removing some legacy fixed‑income managers and replacing them with other managers) and said the subcommittee is monitoring a few managers on watch (he named Hartford international strategy, MFS value and Vanguard Explorer in the packet). He also described the recordkeeper review and cybersecurity questionnaires for MissionSquare and the use of Morningstar for managed accounts.

Board follow‑up and next steps: Cashmark said he will deliver Q4 reconciliations and the subcommittee will meet in February to review allocation, manager performance and to test the 6.5% assumption against updated multi‑year projections. The board also asked staff to confirm annual governance checklists (cybersecurity questionnaires of recordkeepers) and to forward any requested materials ahead of the February subcommittee meeting.

Ending: The presentation left the board with no immediate requests for changes to investment policy; the advisor will return with Q4 numbers and a governance packet in February so the board can review allocations, manager watch items and the actuarial assumptions in greater detail.