R.I. Treasurer's Plan Would Boost Local Pensions

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Rhode Island General Treasurer Seth Magaziner announced an initiative to boost local pension systems by making it easier for them to join the state system.

Magaziner's "Healthy Local Pensions," or HELP proposal, would improve performance and reduce costs through Rhode Island's Municipal Employees' Retirement System, he said Thursday,

More than 75% of municipal pension plans are enrolled in MERS.

According to Magaziner, the size of the MERS enables municipal plans to experience a healthy funding status, stronger investment performance and lower costs.

"Too many locally managed municipal pension plans are struggling, costing cities and towns millions of dollars and threatening the retirement security of hard-working municipal employees," said Magaziner. "This proposal provides a new tool for municipalities to get their pension plans back on track."

The General Assembly must approve the proposal.

While the 116 municipal plans in the state system have an average funded status of 83%, the pension plans that remain locally administered carry a combined $2.4 billion unfunded liability, said Magaziner.

Of the 34 locally administered plans, 19 are below 60% funded and 12 are below 40%.

Central Falls' bankruptcy in 2011 put a spotlight on Rhode Island's municipal pension problem. The 19,000-population, one-square mile city seven miles north of capital Providence cited an $80 million unfunded pension liability in its Chapter 9 filing. Its funded ratio at the time was 8.7%, according to S&P Global Ratings.

The city exited Chapter 9 one year later and three weeks ago, S&P raised Central Falls' general obligation bond rating three notches to BBB from BB, citing strong financial management. Still, according to S&P, the city's locally administered pension plan as of July 1, 2016, was only 24.1% funded.

Central Falls Mayor James Diossa had projected the fund to emerge from critical status, or 60%, by 2026.

Current MERS requirements are "prohibitively rigid" for some critically funded municipal plans to enter the MERS system, according to Magaziner.

He said his initiative would make it easier for municipal pension plans to enter MERS by offering longer amortization periods and allowing certain parts of the pension benefit structure to conform to MERS standards gradually instead of immediately, provided they still meet acceptable actuarial guidelines.

Under the HELP proposal, the decision to join the state's plan remains optional and the municipality and its labor organizations must bargain it collectively. Each MERS plan's funded status is calculated separately, meaning new plans entering MERS do not create additional risk for plans already in the system.

This will not affect the funding status of the state employees', teachers', or current MERS members' plans, said Magaziner.

He said the bill would also provide an option for municipalities with closed plans, in which no new participants will be added, to turn over management of investments to the state Treasury without changes to benefits.

These closed plans would not be considered part of the MERS system.

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