The total amount of unfunded public-pension and other post-employment benefit liabilities is staggering for many cities.
In Providence, the unfunded post-employment benefits, largely related to health care expenses for former employees, is estimated at $1 billion. Boston’s is $2 billion, said Daniel W. Sherman, CEO of Massachusetts-based Sherman Actuarial Services LLC, during a panel discussion on the looming municipal pension crisis.
In Rhode Island, out of 39 towns and cities, only about one-third are funding their OPEB plans in advance of retirements. Most are paying as they go, Sherman said. He advised municipalities to start paying into the OPEB plans, and feed their pension plans by the annual amount specified by actuaries.
If cities and towns just start the funding process they’ll do a lot for their bottom lines and employees, said Ernest Almonte, the former auditor general of Rhode Island, now a partner at RSM US LLC in Boston.
OPEBs are in even worse shape than pension plans, Almonte said.
“Most of them are not underfunded. Most are unfunded,” he said.
Their comments came at an Oct. 14 presentation arranged by Donoghue Barrett & Signal, which has a Providence office, as well as the Rhode Island League of Cities and Towns.
Unfunded liabilities across Rhode Island communities are now at $5.6 billion. Moderator William Dolan III described it as “one of the great public policy crises of our time.”
Almonte said one of the most important things a city or town can do is pay the annual, required contribution set by actuaries. He and other panelists recommended that cities and towns also consider merging their individually funded plans into the state’s Municipal Employee Retirement System plan, which can achieve savings by reducing costs.
The merging of individual plans into the MERS system, which falls under the office of General Treasurer Seth Magaziner, would require communities to make required annual payments. Magaziner is the chairman of a new committee that will have oversight of local pension plans.
A few days after the panel discussion, Magaziner spokesman Evan England said “a number of municipalities have expressed interest in joining a state administered pension system and we are in the process of exploring that.”
Providence has made the annual required payments into its pension plan for the past four years, said City Councilman Sam Zurier.
But the city now is considering lowering the assumed annual return of its pension plan from 8.25 percent to 8 percent, he said, which would lower the city’s funded ratio, and would also increase the size of the annual required contribution.
“There may be a decision coming soon that we need to put more money into the pension, never mind the OPEB,” he said. •