A drop in interest rates will save Bloomfield Township about $2.6 million, as the board of trustees on Monday, June 24, authorized refunding more than $44 million in pension bonds that had been issued in 2013.
Laura Bassett, an attorney with Dickinson Wright, said state law requires the township to refund and reissue the bonds if a savings can be achieved, which she said the lower interest rates will do "quite nicely."
Currently, the township has an outstanding debt of about $44.25 million related to general obligation limited tax pension obligation bonds that were issued in 2013. Those bonds were issued to finance unfunded pension liability of the township's defined benefit pension plan. The plan has been closed to all new hires since 2005 and was replaced with a lower cost defined benefit contribution plan for new hires.
The previous plan was established in 1961 to set aside funds to provide retirement benefits for qualifying full-time employees and their families. Chronically low interest rate returns and poor equity investment returns were two of the main reasons for steep increases to the annual cost of the previous defined benefit plan, with annual contributions increasing from about $3.2 million in 2003 to $10.7 million in 2013.
In 2013, the township took advantage of a new state law that allowed the township to issue bonds to finance the unfunded portion of the defined benefit pension plan. The bond issuance thus allowed the township to lower the annual cost to finance the pension liability by about $3 million each year, or nearly $60 million over 20 years.
Lou Orcutt, managing director with Hilltop Securities, said the original bonds were financed at an interest rate of 4.5 percent, while the current interest rate is about 2.76 percent. The actual rate won't be realized until the day the bonds are issued.
The total amount of the bonds that will be about $49.7 million, with the board approving an amount not to exceed $50 million.
Trustee David Buckley questioned why the amount of the new bonds will be higher than the existing liability of about $44.25 million.
Orcutt said the amount of the new bonds will be higher than the older bonds because the existing bonds aren't callable until 2023. Therefore, the township will need to borrow enough to make payments on the bonds until 2023. However, he said even with the additional funds, the township will realize a savings, which is required by state law in order to proceed with the action.
The board voted 6-0 to approve the action, with trustee Dani Walsh absent.