New advisory council to oversee local pension plans awaiting governor’s signature

STATE SEN. RYAN W. Pearson sponsored legislation that was approved by the R.I. General Assembly last week to create a five-member advisory council to oversee 33 locally administered pension plans across 24 Rhode Island cities and towns. / COURTESY R.I. GENERAL ASSEMBLY
STATE SEN. RYAN W. Pearson sponsored legislation that was approved by the R.I. General Assembly last week to create a five-member advisory council to oversee 33 locally administered pension plans across 24 Rhode Island cities and towns. / COURTESY R.I. GENERAL ASSEMBLY

PROVIDENCE – Pending Gov. Gina M. Raimondo’s signature, Rhode Island will establish a new advisory council to oversee local pension plans, which together are underfunded by more than $2 billion.
The R.I. General Assembly last week passed legislation to create a five-member advisory council to oversee 33 locally administered pension plans across 24 Rhode Island cities and towns. The legislation, sponsored by state Sen. Ryan W. Pearson, D-Cumberland, passed both the House and Senate on Friday, a week after Providence Business News reported on the looming unfunded pension and health care liabilities that plague the balance sheets of Rhode Island municipalities.
Pearson, who tried to pass similar legislation at least twice before, says his attempt this year garnered support because of the recent disbanding of a similar entity, a $5 million incentive aid that ends this year and because his fellow lawmakers have started to see the long-term value in trying to ensure municipalities don’t revert to making irresponsible financial decisions when it comes to long-term debt.
“The idea would be to provide a little more oversight,” Pearson told Providence Business News.
Following the 2011 pension overhaul of the state-administered plan, a Local Pension and OPEB Study Commission was created to examine locally administered pension plans excluded from the state plan. The 14-member panel found municipalities were vastly underfunding local pension systems, resulting in an aggregate of more than $2 billion of unfunded liabilities. After submitting a host of recommendations to Raimondo and the R.I. General Assembly last January, however, the commission disbanded indefinitely creating a void in the state’s already limited oversight. Likewise, a recurring $5 million incentive fund that went to municipalities as a reward for adequately funding those local plans is not included in the now-approved fiscal 2017 budget.
The new five-member advisory council would comprise the general treasurer, serving as chairperson, the auditor general, a union representative appointed by the governor, a representative from the R.I. League of Cities and Towns and a representative from the R.I. Department of Revenue.
Each year the council would have to submit a report to the governor’s office and the General Assembly, including information on system performance, how much money is available to pay benefits, projected rates of return and a calculation of administrative fees. The report will also include an opinion prepared by the general treasurer regarding the sustainability of each plan, highlighting any potential area of concern, according to the legislation. The R.I. Division of Municipal Finance, an arm of the DOR, already publishes some of this information online and while the new law doesn’t provide any guidance on how municipalities might be penalized for not adequately funding the pension systems, Pearson hopes the general treasurer’s yearly opinion will help nudge communities toward acting more financial responsible.
“If the general treasurer comes out and says city or town ‘X’ has a significant problem in not funding its pension liability, that will either be enough to begin the conversation about how cities and towns should behave, or highlight the need for a stick,” he said.

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