Norwich — City leaders and finance officials presented a plan Tuesday that would fully fund the city’s unfunded pension obligation by bonding the entire estimated $144 million at current low interest rates, saving an estimated $43 million over 30 years.

Members of the City Council, Board of Education, Board of Public Utilities Commissioners and Personnel and Pension Board listened as finance and bonding experts explained the plan Tuesday. It would need voter approval in a November referendum and approval by the state treasurer and Office of Policy and Management.

“This could really be a game-changer in the way the city funds its annual pension obligations,” City Manager John Salomone said. He said the city could take advantage of the “extraordinarily low” interest rates to finance the plan.

The city would purchase an estimated $144 million in Pension Obligation Bonds (POB), which are taxable municipal bonds, and use the revenue to fully fund the estimated unfunded portion of the city’s pension liability. Officials estimated Norwich could purchase the bonds at a 3% interest rate.

Then, instead of the city paying rising annual amounts into the pension fund from the city, school and Norwich Public Utilities operating budgets, they would pay the current year’s pension obligations for active employees and debt service on the POB.

The move essentially “replaces one liability with another,” city Comptroller Josh Pothier said. But with the historically low interest rates, the city expects the bond debt payments to save an estimated $43 million over 30 years.

In this year’s operating budget, the city is paying $13.7 million into the pension fund.

The historically low interest rates are much to blame for the rising unfunded pension. Despite negotiations with unions to raise pension contributions and reduce retiree pension benefits, the fund has lost interest income. The interest income on a typical pension portfolio has fallen from 8.25% to about 5% with no changes in investments, Becky Sielman, consulting actuary for Milliman, Inc., said.

Each 1% of interest income lost translates to 10% of unfunded pension liability, she said. Sielman recommended Norwich use 6.25% in pension investment income.

Sielman credited Pothier for proposing a payment stabilization mechanism for the Norwich pension fund. A reserve fund would be created, so that in years when pension interest income drops below a certain point, the reserve fund could replenish at least part of the gap. If the pension fund earns more than expected, a portion of the city’s annual pension payment could go into the reserve fund.

If the city goes forward with the plan, the pension bonds would be issued in February. The $13.7 million the city has budgeted this year for the pension contribution would be used to start the pension reserve fund, Pothier said.

City Council President Pro Tempore Mark Bettencourt asked about risk factors in the models. Sielman said the actuaries and bonding experts analyzed 10,000 financial scenarios over the next 30 years, projecting both positive and negative extremes in the investment market. In 80% of the scenarios, the city came out with savings with the POB.

John Stafstrom, Jr., bond counsel for Pullman & Comley LLC, said several Connecticut cities have issued Pension Obligation Bonds, including Bridgeport, Waterbury and most recently West Hartford, which issued its pension bond Monday. He said the state review would ensure the Norwich plan is financially sound, with realistic projected interest income and well structured bonds.

Norwich’s bonds would be invested over a three-to-five-year period, rather than immediately putting all the money into the stock market, thus avoiding hitting a potential short-term market slide, Stafstrom said.

c.bessette@theday.com