It was all smiles at the Bloomfield Township Treasurer's Office on Thursday, August 15, as the municipality refinanced its 2013 pension obligation bonds to provide the township with a savings of about $5.1 million.
The Bloomfield Township Board of Trustees in June authorized refinancing nearly $50 million in bonds issued in 2013 that were issued to cover pension obligations. At that time, Bloomfield Township treasurer Brian Kepes estimated the township would realize about $2.6 million in savings by refunding the remaining bonds and reissuing them at a lower interest rate.
On Thursday, Kepes said the actual savings is closer to $5.1 million, as interest rates dropped from nearly five percent to 2.19 percent, producing a savings of about ten percent on roughly $50 million in bonds.
"We are extremely pleased with the yearly savings of almost $400,000," Kepes said.
In 2013, the township issued approximately $80 million in tax pension obligation bonds. Those bonds were issued to finance the unfunded pension liability of the township's defined benefit pension plan. That plan had 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 for retirement benefits for qualifying full-time employees. 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 define 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 about $60 million over 20 years.
In June, Lou Orcutt, managing director with Hilltop Securities, which handled the refinancing, said the original bonds were financed at an interest rate of 4.5 percent. The rate in June was about 2.76 percent, while the actual rate on Thursday, August 15, was 2.19 percent, providing a greater than expected savings.