Report: Most R.I. municipal pension plans in ‘critical’ status

MOST MUNICIPAL PENSION PLANS, covering firefighters, police officers and other municipal employees, remain in "critical" funded status, according to a new state report.

PROVIDENCE – Though funding levels for most of Rhode Island’s municipal pension plans have improved in recent years, a majority of them remain in “critical” underfunded status, according to a state “report card” released Monday.

Twenty-one of the 35 plans are less than 60% funded, and therefore are considered in “critical” status, according the 2019 Report of the Advisory Council for Locally Administered Pension Plans. In comparison, only four of the 118 pension plans managed by the state are in critical status.

Monday’s report is relevant to thousands of active and retired police officers, firefighters and other municipal employees across Rhode Island relying on municipal pension plans for retirement benefits, as well as to taxpayers responsible for funding pension shortfalls, and municipal officials seeking to strike a balance between maintaining strong retirement systems and investing in other priorities.

The report found that Rhode Island’s 35 locally administered open and closed pension plans carry a combined unfunded liability of about $2.5 billion, up from about $2.4 billion last year.

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However, the funded statuses of 29 of those plans have increased since fiscal 2012. Those improvements can be attributed to the rise in the stock market over that period, and to most municipalities consistently making their full actuarial required contributions in recent years, the report stated.

General Treasurer Seth Magaziner, the Advisory Council’s chairman, issued the report.

“All Rhode Islanders deserve security and predictability in retirement, especially those Rhode Islanders who have spent their lives serving the community,” Magaziner said in a statement. “These report cards continue my commitment to transparency by helping the public understand the financial condition of municipal pension systems.”

The state General Assembly created the Advisory Council in 2016 to produce an annual report on Rhode Island’s municipal pension plans, summarizing key information and pointing out trends.

Among the findings of this year’s report:

  • Fourteen of the plans have assumed rates of return at or below 7%, indicating that those plans have a strong funding policy and are less likely to face future unexpected shortfalls.
  • The funded statuses for five of the plans have decreased since fiscal 2012. For at least one of those plans – Woonsocket – there was not a significant change of actuarial assumptions that could be identified as a contributing factor.

The funded status of Woonsocket’s plan, covering 171 retired and 50 disabled police officers and firefighters, dropped by 14.2 percentage points from fiscal 2012 to fiscal 2017. The plan had assets valued at $36.3 million with liabilities totaling $85.4 million for a funded ratio of 42.6%.

  • Some of the plans have investment return and payroll growth assumptions that may not be realistic. The 8% investment return assumption used by the Providence pension plan is the highest of any public pension plan in the state.

Providence, which has the largest municipal plan in Rhode Island, saw its funded level slip by 7.4 percentage points from fiscal 2012 to fiscal 2017. The plan had assets valued at $348.6 million with liabilities totaling more than $1.3 billion for a 26.3% funded ratio. The plan covers 2,891 active employees, 3,244 retirees, and 533 others.

Providence’s large municipal pension payment obligations recently prompted Mayor Jorge O. Elorza to propose leasing the city’s water supply system to a private operator to raise funds, but the plan was dropped amid staunch opposition.

In addition, Monday’s report noted improvements in funding status with the East Providence Police and Fire Plan (58.5% funded ratio), the Scituate Police Pension Plan (41%), the Warwick Public School Employees Plan (105.8%), the Smithfield Police Plan (38.8%), and the Middletown Town Plan (98.6%).

It also noted that the Bristol Police (57.8% funded ratio), Coventry Schools (43.8%), Lincoln (66.2%), North Providence Police (86.8%), Providence (26.3%), and the Warwick Police II (82.9%) plans have lowered their assumed rates of return since fiscal 2012, thus strengthening their funding plans and reducing the risk of underfunding.

Furthermore, it stated, Johnston and Smithfield have not consistently made full actuarially required contributions to at least one of their pension plans over the past four years. Jamestown has also made less than full contributions to its Police Plan, though it remains nearly 100% funded.

The full report can be downloaded here.

The above figures do not include other unfunded liabilities, such as other post-employment benefits, known as OPEBs. According to a 2015 report cited in a June 2016 PBN article, a state-run commission calculated an aggregate OPEB liability of $3.1 billion, funded at 1.4%, for 34 locally administered pension plans across 24 Rhode Island cities and towns.

Scott Blake is a PBN staff writer. Email him at Blake@PBN.com.

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