Unfunded liabilities burden Rhode Island's local pension plans
Many Rhode Island municipalities have their work cut out in managing their pension obligations, according to a state advisory council.
The 35 locally administered plans reviewed carry a combined unfunded liability of roughly $2.5 billion — a slight increase from last year — General Treasurer Seth Magaziner said in a report.
Magaziner chairs the Advisory Council of Locally Administered Pension Plans.
Twenty-one of those plans, Magaziner said, are less than 60% funded, meriting "critical status." In addition, the funded statuses for five plans have dropped since fiscal 2012, the beginning of the period the study reviews, and in at least one case, that of Woonsocket, change of assumption rate was no factor.
Members of the volunteer council include state Auditor General Dennis Hoyle; Director of Revenue Mark Furcolo; Lincoln Town Administrator Joseph Almond; and AFL-CIO Secretary-Treasurer Maureen Martin.
"While Rhode Island has made progress in improving the health and transparency around local pension plans, more work remains to make our locally administered pension plans sustainable," Magaziner said.
The Central Falls bankruptcy in 2011 triggered a heightened scrutiny of local pension plans within Rhode Island. The city, with an 18,000 population, reported an $80 million unfunded liability when it filed under Chapter 9. Central Falls exited bankruptcy 13 months later with a plan that cut pension benefits.
Some plans, according to Magaziner, have unrealistic investment return and payroll growth assumptions. The pension plan in capital city Providence has Rhode Island's highest assumed rate, 8%.
Johnston and Smithfield have not consistently made full actuarially required contributions to at least one of the pension plans in the last four years. Jamestown has also made less than the full ARC payment to its police plan, though that plan remains close to full funding.
Full ARC payments are essential to managing public pension liability, said James Spiotto, a managing director at Chapman Strategic Advisors LLC in Chicago. "The real erosion is when the municipalities don't pay."
On the positive side, said Magaziner, the funding statuses for 29 of the 35 plans have increased since FY12, while most municipalities met or exceeded their full ARC payments over four years.
Fourteen plans have assumed rates of return at or below 7%, indicating that these plans have strong funding policies and are less likely to encounter sudden shortfalls.
Bristol, Coventry Schools, Lincoln, North Providence, Providence and the Warwick Police II plans have lowered their assumed return rates since FY12.
"Probably the most helpful part is that most of them are paying their actuarially required contributions, which is very important," Spiotto said. "Some plans are lowering [their assumption rates], which is good. But 7% is still doubtful."
The report-card concept enhances transparency, Spiotto added. "Michigan and some other states have some pretty good oversight over their local plans."