CORRECTION APPENDED

While many cities and towns around the state and country have seen their public pension funds devastated amid the historic decline in the markets—losses of 20 to 30 percent over the past few months have been widely reported—city officials said that Cambridge is poised to ride out the turbulence, cushioned by a history of sound budgetary management and fiscal conservatism.

“I would venture that Cambridge has if not the strongest, then certainly one of the strongest pension plans in the state,” said City Councillor Brian P. Murphy ’86-’87. “Certainly, for every pension system in the state, it’s been a rough year. But we’re fortunate that, because we behave more like an ant than a grasshopper, we’re more prepared to handle the economic winter than anybody else.”

The city’s pay-as-you-go pension program, administered by the Cambridge Retirement System, covers employees for the City of Cambridge, the Cambridge Health Alliance, the Housing Authority, and the Redevelopment Authority. Each year, the city allocates part of its budget—$26 million in 2008—to pay the pensions of current retirees.

The contribution is also used to support future retirees reducing the city’s unfunded pension liability, or the amount by which the fund’s assets fall short of what experts predict the fund will need to cover pensions in the coming decades.

According to the city’s budget director, Louis A. Depasquale, Cambridge was on track to pay off its unfunded liability—reported at $67 million at the start of the year—by 2013. Massachusetts law requires cities and towns to pay off their unfunded liabilities by 2028. [SEE CORRECTION BELOW]

As of Jan. 1, the actuarial value of the assets in the pension fund was $766 million, giving Cambridge’s pension plan a funded ratio of 91.96 percent—just above the 90 percent ratio that many experts say is financially responsible. By comparison, Boston’s funded ratio in 2006 was only 64.40 percent, or well below the 80 percent that is generally considered “at-risk.”

Depasquale pointed to Cambridge’s aggressive approach to paying off its liability as the reason for its comfortable position, noting that although the 2013 date may need to be extended somewhat, the city has ample time to comply with the state law.

“Our advantage—and there are few other cities that you’ll find this in—is that we were scheduled to have our plan paid off by 2013, which is pretty much unheard of,” Depasquale said. “A lot of cities and towns had it in their plans to pay off [the unfunded liability] by 2028, and if you were close to that date, obviously you [now] have a real problem. Fortunately for us, we have some more room to recover here.”

Pension funds are often heavily invested in the stock market. Because of the economic turmoil, Massachusetts lawmakers have been forced to consider extending the 2028 pension fund payment deadline to help cities and towns cope with the chilling economy.

In fact, the downturn has also had negative effects on the funds for state’s own retirees.

“For the state, the issue is that if we under-fund the yearly payment into the pension fund, we have to extend out the year when the past shortages will be caught up,” said State Representative Alice K. Wolf, whose district includes Harvard and much of the west part of Cambridge. “This becomes an issue every time there is a financial crisis.”

While Cambridge’s larger and earlier payments into its pension plan have given the city more room to maneuver than others, city officials said that the pension funds have almost certainly been harmed by the slumping markets.

Up-to-date actuarial reports on the pension fund have not yet been made available as the city typically receives biennial reports, the last of which was received in July, according to Murphy. Depasquale said the city may look to get an interim report on the pension fund in January or February.

But City Councillor Craig A. Kelley said that while the pension fund has surely suffered, only a long-term perspective could provide the necessary context to examine its value.

“It’s like my 401(k)—I’ve lost a lot of money,” Kelley said. “But I’m not looking to tap that for 20 years, so its value is only really useful then. The market can go up, go down, do whatever, but what it’s worth when I [tap] it is what’s relevant.”

—Staff writer Peter F. Zhu can be reached at pzhu@fas.harvard.edu.

CORRECTION

The Dec. 16, "Cambridge Pensions Relatively Robust," misstated the title of Louis A. Depasquale. He is the assistant city manager for fiscal affairs, not the budget director.