Two South Shore communities are confronting rising pension obligations that threaten to squeeze municipal budgets, with Norwell facing assessments exceeding $6 million and Hanover considering an advance payment that could save approximately $2.58 million over three years.
The discussions at recent Select Board meetings reflect growing financial pressure on communities participating in the Plymouth County Retirement Association (PCRA), which administers pensions for municipal employees across the region. Changes to the retirement system's actuarial assumptions have increased projected costs and pushed its full-funding target from 2031 to 2032.
While Norwell officials are questioning how the increases will affect the town's long-term financial planning, Hanover is considering using up to $2 million from its stabilization fund to reduce future retirement assessments.
At Norwell's Oct. 14 Select Board meeting, Plymouth County Treasurer and retirement association Chairman Tom O'Brien and PCRA Executive Director Lauren Durham explained how updated financial assumptions contributed to the increases.
The association reduced its assumed annual investment return from 7.875% to 7.625%, along with changes involving employee payroll growth and retiree mortality. Those adjustments increased the amount communities are expected to contribute toward the system's unfunded pension obligations.
The association adopted a funding schedule limiting systemwide annual assessment increases to 9.75% through 2031, with full funding projected for 2032. Individual communities face different increases depending on their pension obligations.
The revised assumptions have also generated disagreement between the retirement board and its actuary. In its September report, KMS Actuaries said the board's adopted 7.625% investment return assumption exceeded what the firm considered reasonable, identifying 7.4% as the upper end of its recommended range.
The retirement board defended its decision, citing investment returns averaging 8.2% over the previous 30 years. Using the lower assumption would increase the system's calculated unfunded liability by approximately $55 million and its fiscal 2028 funding requirement by $4.5 million, according to the report.
O'Brien emphasized that the increases were not primarily the result of poor investment performance.
"It wasn't the investment performance side that was increasing the liability. We were meeting our bogey. It was a change in these assumptions that we had to deal with."
For Norwell, the revised schedule presents a challenge to a multiyear financial plan developed around the expectation that pension costs would decline sooner.
According to the retirement association's actuarial report, Norwell's assessment is projected to reach $5,705,856 in fiscal 2028 and $6,255,849 in fiscal 2029, an increase of nearly $550,000 in one year.
Board members questioned whether future actuarial reviews could result in additional changes and how the town could make reliable budget projections when retirement costs remain uncertain.
O'Brien said assessments for fiscal years 2028 and 2029 are established, but subsequent years remain subject to the next actuarial valuation, scheduled as of Jan. 1, 2028.
"I don't know what's going to happen over the next four years," O'Brien said, acknowledging the uncertainty surrounding future investment performance and economic conditions.
Norwell officials also raised concerns about communication from the retirement association, questioning whether communities had received sufficient advance notice of the changes to incorporate them into local financial planning. O'Brien acknowledged those concerns and offered to improve communication about future retirement board meetings.
Hanover's Oct. 5 Select Board meeting focused on a potential financial response to the rising costs.
Officials reviewed actuarial projections showing how advance pension payments could reduce assessments during the final years of the funding schedule. The town is considering a Town Meeting article authorizing the use of up to $2 million from its general stabilization fund for that purpose.
According to the analysis presented, a $500,000 advance payment could produce approximately $649,300 in assessment savings between fiscal years 2030 and 2032. A $2 million payment could generate approximately $2.58 million in assessment savings over the same period.. The assessment savings would free up a like amount in the operating budget that could be used to keep service levels intact.
The projections depend on actuarial assumptions and are not guaranteed. The financial stakes are significant. Hanover Select Board memberJames Hoyes told the Select Board that the town's annual pension assessment could reach approximately $10.8 million in fiscal 2032, nearly $8.2 million more than anticipated in its previous five-year financial plan.
"I don't find it responsible to just ignore this $10.8 million number and do nothing," Hoyes said.
He warned that failing to address the increase could force the town to consider a substantial property tax override or cuts to municipal services. Advance funding, he explained, could provide relief during fiscal years 2030 through 2032, when Hanover expects some of its greatest budget pressures.
Hoyes emphasized that the potential benefits extend beyond the immediate financial savings. Reducing pension assessments could preserve money in the operating budget for essential services.
"These are dollars that can be used to retain teachers and firefighters and things like that," Hoyes said.
Current financial policy would add $200,000 per year to Stabilization which would be $1 million over this 5 year period. Additional replenishment strategies need to be explored with approximately $10 million in budget flexibility available in fiscal year 2033 once the unfunded pension liability is erased.
Advance funding also emerged during Norwell's discussion.
O'Brien said the retirement association has encouraged member communities with available resources to consider making additional pension contributions. He cited Hanover's request for an actuarial analysis as an example of how towns can evaluate potential savings before deciding whether to commit funds.
Norwell officials discussed whether direct pension prefunding could help smooth future assessment increases. They also considered how money already allocated to other post-employment benefits, known as OPEB, might be used to cover eligible retiree expenses and free up operating funds for pension contributions.
O'Brien said there is no limit on how much a community can contribute in advance, but cautioned that the approach depends on each town's financial circumstances.
Norwell already takes advantage of a separate savings opportunity offered by the association: a 1.8% discount for paying its annual assessment in full on July 1. The actuarial report shows that paying early would reduce Norwell's fiscal 2028 assessment by $102,918, from $5,705,856 to $5,602,938.
For both communities, the larger question is how to manage several more years of increasing retirement costs without undermining municipal services or long-term financial stability. Hanover has moved toward a specific proposal for voters to consider, while Norwell is evaluating its options as officials work to adjust the town's financial plan.
Hanover voters will be asked to consider whether to authorize an advance pension contribution from stabilization funds. Town officials must determine the specific amount and how they would replenish reserves if the expenditure is approved.
In Norwell, officials will continue evaluating the revised retirement assessments as part of their financial planning, including whether advance pension contributions could help reduce future budget pressures.
Both communities will remain subject to the retirement association's funding schedule, with future actuarial valuations determining whether projected assessments change before the system reaches full funding.