Norwich to consider Pension Obligation Bonds this November
In August, the Norwich City Council adopted an ordinance in the amount of $145,000,000 in connection with the issuance of general obligation pension bonds to fund the liabilities of the City of Norwich Employees’ Retirement Plan. The Council also voted to submit the appropriation and bonding authorization to the voters of Norwich for approval at a referendum to be held in conjunction with the November 2, 2021 election.
A Pension Obligation Bond (POB) is a bond sold by the City to investors to fund all or a portion of the unfunded accrued liability of the City’s Pension Plan.
A POB is similar to refinancing a home mortgage and intended to take advantage of current low interest rates resulting in savings to the City. The City will pay investors interest in order to sell the POBs. The funds the City receives from investors upon the sale of the POBs will be invested as part of the portfolio of pension plan assets. The portfolio is managed to achieve a target long-term rate of return that is greater than the interest rate owed over the term of the bonds.
The City is proposing to issue up to $145 million of POBs in order to fund the Unfunded Accrued Liability and to pay those bonds off over 25 years.
An actuarial analysis of the proposed plan indicates that the POBs could yield net present value savings of $43 million over a 30-year period. These savings are not guaranteed. Actual savings or costs will depend on actual future investment performance.