ESPN Home Enjoying Pension Surplus Boosting Bonds: Muni Credit
Bristol, Connecticut, home of global sports television network ESPN, is bucking a nationwide trend of struggling pension plans with a retirement system that has about 200 percent of the assets needed to meet its obligations.
While communities from Maine to California are struggling to meet pension promises they made to public workers, Bristol hasn’t had to contribute to its retirement plan since 2007 and is now looking to use the $556 million system to foster local economic development.
“This is the first time I’ve ever seen anything like this,” said Eric Friedman, a public-finance analyst at Fitch Ratings in New York. “It’s admirable that they are looking at creative ways to use the funds.”
States and cities from California to Rhode Island have been grappling with a pension-funding crisis triggered by investment losses after the Standard & Poor’s 500 Index (SPX) sank about 38 percent in 2008, the most since 1937. For many, the fault lies with lawmakers who for years failed to budget enough to fund pension benefits promised to public employees.
The median funding ratio for U.S. state retirement plans fell to about 72 percent for the year through June 2011, from 74 percent the prior period, data compiled by Bloomberg show. More than 30 states, including New Jersey and Connecticut, had less than 80 percent of assets needed to meet obligations, leaving their plans short of the threshold for sustainability.
Bristol, a former manufacturing hub of 60,000 residents in central Connecticut near the state capital of Hartford, established its funds in the late 1970s, around the same time ESPN moved its fledgling operations to the city. The company, majority-owned by Burbank, California-based Walt Disney Co. (DIS), is the city’s largest taxpayer and employs around 4,000 people on its campus.
The city has always made its annually required contribution while keeping benefits affordable, with no automatic cost-of- living increases for retirees, for instance, according to Thomas Barnes, Bristol’s treasurer. The plans were aided by deft investment management, especially in the 1980s and 1990s as stocks soared, he said.
Its pension funds had assets of about $556 million as of July 1, 2011, compared with liabilities of $319 million, according to an actuarial report. Its firefighters’ pension had a 241 percent funding ratio on that date, the police plan had 192 percent and the fund for city workers 125 percent, the report showed. The combined ratio was about 200 percent, according to John Beirne, the city’s investment adviser since the funds were established.
“We’re very fortunate because we had forefathers who exercised restraint and had the ability to understand the marketplace,” said Arthur Ward, a Democrat elected to his second term as mayor of Bristol in 2009. “They set the standard for the rest of us.”
Bond investors have rewarded the city, which is rated AA+, the second-highest rank from S&P and Fitch, and one step lower by Moody’s Investors Service. Bristol sold general-obligation debt in 2011 at yields below similarly rated bonds.
Its debt has also kept pace with a rally in top-rated securities. Bristol bonds maturing in August 2018 traded in the past two weeks at a yield spread averaging 0.2 percentage point above AAA tax-exempts, the same gap as when they were issued in June 2011, data compiled by Bloomberg show.
The city’s pension investments gained about 6 percent a year over a decade through 2010, according to Beirne Wealth Consulting LLC, founded by John Beirne.
The median annual gain for public plans in that period was 4.9 percent, according to the BNY Mellon U.S. Master Trust Universe, the city’s investment benchmark for the period.
Connecticut boasted returns similar to Bristol, with a 6.6 percent annual gain over 10 years through July 31. Yet the state’s system has only 55 percent of the assets needed to meet liabilities, data compiled by Bloomberg show.
“Places like Bristol stand out because they’ve met their obligations,” said Larry Dorman, a spokesman for Council 4 of the American Federation of State, County and Municipal Employees in New Britain, Connecticut.
The average funding level for the 185 locally managed pension plans in Connecticut was about 86 percent, according to data compiled by the state’s Office of Policy and Management. The city of Milford, which also uses Beirne Wealth Consulting as an investment adviser, had 127 percent.
Bristol and Milford were among the first communities to hire independent investment advisers instead of using more conservative trust departments at banks to manage their money, said Beirne, 70. He left Merrill Lynch & Co. this year following its 2009 acquisition by Bank of America Corp. to start his own firm.
“It was like heresy in those days,” said Beirne, who is based in Milford. “Nobody had done it.”
Armed with a surplus, Bristol officials are debating whether to invest in companies willing to relocate to the city, which had an unemployment rate of 9.1 percent in August, compared with 8.1 percent nationally. The pension board is set to discuss the matter at its meeting next month, said Barnes, who is also president of the city’s Republican committee.
Not that Bristol emerged unscathed from the longest recession since World War II. The city has cut about 44 positions through attrition since 2008, out of a workforce of more than 500, and is raising taxes to close a budget deficit, Mayor Ward said. Also, like other communities, it faces a funding gap for the health-care benefits it has promised its workforce.
Some Connecticut communities that are close to being fully funded are seeking to trim pension benefits as they struggle to balance budgets, said Dorman, the union official. Similarly, other communities that failed to make contributions have warned they may run out of money to meet obligations.
“It’s the political climate that’s allowing that to happen,” said Dorman.
In trading yesterday in the $3.7 trillion municipal market, yields on 10-year bonds rated AAA rose about 0.01 percentage point to 1.66 percent, data compiled by Bloomberg show. The index touched 1.63 percent July 27, the lowest since at least January 2009, when data collection began.
Following are pending sales:
CITY & COUNTY OF DENVER plans to issue about $866 million in airport system revenue bonds as soon as today, according to data compiled by Bloomberg. The debt will be used to finance part of Denver International Airport’s capital plan. (Updated Oct. 10)
MASSACHUSETTS SCHOOL BUILDING AUTHORITY plans to sell $725 million in sales-tax bonds as soon as Oct. 11, Bloomberg data show. Proceeds will be used to refund debt. (Updated Oct. 10)
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