Though several questions were raised during a recent meeting of the Board of Finance and a representative from Hometown Firefighter & EMS Services regarding a significant deficit in the Volunteer Fire Department’s Length of Service Award, the final, and perhaps most pressing one was: How can we explain this to the taxpayers?
Background
In fiscal year 2006-2007, the Board of Selectmen entered into a contract with the Volunteer Fire Company to provide a Length of Service Award Program to incentivize participation. At the time it was acknowledged that most of the surrounding small towns offer some sort of compensation for volunteer first responders, such as tax abatements or life insurance policies, and that these plans are far less expensive than the cost of professional services. The arrangement Town officials selected was an annuity plan, with members becoming vested after ten years of service with the department and earning $10 per month for every year of service to 30 years, with a maximum benefit of $300 month and an entitlement age of 65. At the time, the fire department had 36 members.
According to the Actuarial Report provided by Hometown Firefighter and EMS Services, which administers the plan, the Town’s contributions recommended by the Actuary ranged from approximately $30,000 to $50,000 annually. However, the Town’s actual contributions were significantly less. In 2007, for example, the first year of the plan, the recommended amount was $52,480 for a 10 year amortization and $32, 481 for 30 years. The Town, however, only contributed $6,077 that year, increasing to $17,656 in 2009, an amount that remained until 2016, when the Town contributed $24,256, though the recommendation that year was $34,748 – $62,210. Apparently, officials from the Fire Department received an annual actuarial report, yet not an invoice, while Town officials received an invoice, yet not the actuarial report which contained the recommended contributions.
Current Status
According to the actuarial report, because the Length of Service Award Program has not been properly funded, a deficit has compounded since its inception, resulting in a funded ratio of 11.9% of the accrued liability of $507, 234, with assets of $60,518 as of January 1, 2021. This leaves the Town with an unfunded liability of $446,716, a situation which Town officials were apprised of this last year. Currently, there are 21 active members in Hampton’s Volunteer Fire Company, 11 who qualify for full vesting with at least ten years of credited service. There are also seven inactive members with credited past service of 11 to 30 years. Four members have reached entitlement age and are receiving monthly payments.
Recommendations
To rectify the deficit and properly fund the account, the actuarial report recommended an annual contribution ranging from $35,557 for a 30-year amortization of the remaining unfunded liability, to $62,978 for a 10-year amortization. These amounts do not include the annual plan service fee, currently $3,400 per year.
At the Board of Finance’s meeting on May 20, members affirmed the Selectmen’s recommendation of including $50,000, doubling the amount in the line item, for next year’s budget. The possibility of applying additional monies from the General Fund, which has a healthy balance, to reduce the unfunded liability will be determined after remaining questions are answered, a complete record is received, and legal advice is obtained. “We’re in a financial position to solve the problem,” First Selectman Al Cahill said at the meeting, “but it needs to be solved correctly.”