OLR Bill Analysis
HB 7296 (as amended by House "A")*
AN ACT AUTHORIZING THE FUNDING OF UNFUNDED ACCRUED MUNICIPAL EMPLOYEES' RETIREMENT SYSTEM LIABILITIES BY MUNICIPALITIES.
Existing law requires each municipality participating in the Municipal Employees Retirement System (MERS) to pay the unfunded costs of future pensions for employees brought into the system. Current law generally requires municipalities to pay this unfunded liability in annual installments over a period of up to 30 years. This bill allows municipalities that have accrued an unfunded liability to the system as of July 1, 2017 to authorize bonds to pay all or part of the unfunded liability and establishes procedures they must follow when issuing the bonds. It refers to these bonds as MERS pension funding bonds.
The bill applies regardless of any state or local law concerning the authorization, issuance, or appropriation of bonds, notes, or other obligations. It authorizes the Office of Policy and Management (OPM) secretary, in consultation with the state treasurer, to adopt regulations establishing guidelines on municipal compliance with the unfunded liability payments to the Municipal Employee Retirement Fund (MERF) and the MERS pension funding bonds.
*House Amendment “A” (1) limits the authorization to issue the bonds to municipalities participating in the system that have an unfunded accrued liability to MERS as of July 1, 2017; (2) - requires that the bonds mature no later than 30 years from the date they are issued; (3) increases, from 15 to 30, the number of days notice the municipality must provide to state officials before issuing the bonds; and (4) eliminates an incorrect statutory reference to the definitions of three terms and incorporates the definitions into the bill.
EFFECTIVE DATE: July 1, 2017
MERS PENSION FUNDING BONDS
Unfunded Accrued Liability to the System
The bill allows a municipality participating in MERS that has an “unfunded accrued liability to the system” as of July 1, 2017 to authorize and issue MERS pension funding bonds to pay all or part of its outstanding liability plus the bond issuance costs. It defines this liability as the amount necessary to pay for future employee pensions based on the employees' service before joining the system, reduced by any amount transferred to MERF from other retirement funds on account of such employees. The retirement commission determines this unfunded liability based on consistently applied sound actuarial principles.
Notice of Intent to Issue Bonds
A municipality issuing these bonds must, at least 30 days before the issuance, notify the OPM secretary, state treasurer, and retirement commission of its intent to issue the bonds and provide:
1. the amount of its outstanding accrued liability to the system based on the existing schedule of pension amortization payments, as determined by the retirement commission based on sound actuarial principles;
2. the amount of any remaining annual pension amortization payments scheduled for payment by the municipality for the portion of its unfunded liability to the system that the bonds will not offset;
3. a comparison of the anticipated effects of funding the liability through bonds versus doing so through annually scheduled payments;
4. documentation of the municipality's authorization of the bond issuance, including a certified copy of the resolution or ordinance authorizing the bond sale and an opinion by a nationally recognized bond counsel as to the due authorization to issue the bonds; and
5. any other information the OPM secretary, treasurer, or retirement commission requires or requests.
Final Financial Summary
The bill requires the municipality to submit a final financial summary to the OPM secretary, treasurer, and retirement commission within 10 days after the bond sale. The summary must (1) include any final official statement for the bond issuance and (2) compare the anticipated effects of funding the liability by issuing bonds versus doing so by making annually scheduled payments.
Under the bill, the MERS pension funding bonds are general obligations of the municipality (i.e., backed by the full faith and credit of the issuing municipality). They must be either (1) serial bonds that mature in annual or semiannual principal installments or (2) term bonds with mandatory annual or semiannual deposits into a sinking fund. (A sinking fund is a fund created to regularly set aside funds sufficient to pay the debt.) Despite any state or local law to the contrary, the first installment of any series of such bonds must mature, or the first sinking fund payment must be made, no later than 18 months after the bonds are issued. Also, the last installment or payment must be made within 30 years from the issuance date.
Forms and Conditions of Sale
The bill allows, despite any state or local law to the contrary, municipalities to sell the bonds through a public sale using sealed proposals, by negotiation, or by private placement. They must do so in the manner, at the price, at the time, and on the terms and conditions the municipality or its bond issuance board or officers determine is in the best interest of the municipality. The municipality may not issue temporary notes in anticipation of the bond proceeds.
Use of Bond Proceeds
The municipality must pay the proceeds of any MERS pension funding bonds not used to pay the bond issuance costs to the retirement commission within 30 days after the sale.
The bill authorizes – a municipality to issue refunding bonds to pay, fund, or refund any of the MERS pension funding bonds before their maturity in accordance with state law. However, the weighted average maturity of the refunding bonds may not exceed the weighted average maturity of the outstanding MERS pension funding bonds being paid, funded, or refunded.
Under the bill, “weighted average maturity” is the sum of the products of the principal amount of each serial obligation, or dollar amount of each mandatory sinking fund payment with respect to such obligation, and the number of years to maturity or to such payment (determined separately for each maturity or sinking fund payment and taking into account mandatory redemptions), divided by the aggregate principal amount of the obligation.
The municipality must notify the OPM secretary, treasurer, and retirement commission of its intention to issue refunding bonds at least 10 days before issuing them -. It must give them a copy of any final official statement within 10 days after the refunding bonds are issued.
Planning and Development Committee