BATH — The City Council voted 7-1 Wednesday to transfer a $9.6 million retirement fund surplus to the city, which in turn will have a Portland investment firm manage that money.
The surplus with the Maine Public Employees Retirement System, which has grown from $8.8 million about a year ago, is the result of excess employer contributions the city made from the 1970s to 1990s.
The City Council, which earlier in the meeting adopted amended investment and fund balance policies, has expressed interest for the past year in taking control of the funds. But instead of spending the surplus, the city found an investment company, H.M. Payson, to manage that money under City Council supervision.
Bath will use a portion of the interest to continue paying the city’s annual share of the pension system, and the city can use the rest of the interest to reduce taxes or fund capital projects.
When city employees switched from Social Security to the Maine State Retirement System, Bath had to pay for “catch-up” contributions for employees who had worked for the city for several years. Because of that, the city “had to over-fund the pension system for a period of time,” City Manager Bill Giroux said in February 2011, adding that “the employees paid a normal percent in their check, but the city had to pay extra.”
Actuaries determined the payments, and they tend to estimate on the high side, since they do not want to underfund the pension system, Giroux said. But as it turned out, the city overpaid.
The manager has acknowledged that some people would want the city to spend the entire surplus. But he noted last year that if the city invests the money, and the investment performs as it has over the past three decades, it is likely that the funds would generate about $22 million in the next 30 years – and that would be with spending the interest and not compounding it.
Giroux also pointed out that it is not necessarily taxpayers living in Bath today who paid into the fund, but that it has been people who have paid into it in recent decades.
“And so I think the council’s wish and certainly my recommendation was that this money should benefit Bath people for a long, long time,” he said last year. “And that’s how you do it.”
Kyle Rogers, the one councilor to vote against the transfer, said he did not see any reason to move the funds away from the Maine Public Employees Retirement System just yet.