Raimondo: Move 36 local pension plans into state-run system

January 30th, 2012 at 6:00 am by under Nesi's Notes, On the Main Site

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Treasurer Gina Raimondo thinks the best way to fix the state’s 36 locally run pension plans is to move them into the state-run system. But making that happen will be easier said than done.

“I believe that, ultimately, the long-run answer is get everybody in MERS,” Raimondo told WPRI.com last week during a half-hour interview in her State House office, using the acronym for the state-run Municipal Employees Retirement System. “The question is, how exactly do you that?”

The 36 local plans have a combined unfunded liability of $2.1 billion, but about 40% of that shortfall is in one city: Providence, where Mayor Angel Taveras has clashed with Raimondo over whether the General Assembly should pass legislation giving communities the green light to freeze pension cost-of-living adjustments (COLAs).

“I would be delighted to sit down with Providence if they would like any help,” Raimondo said. “I’ve offered. They say they have it under control. That’s great. I hope they do.”

Taveras spokesman David Ortiz said Raimondo and the mayor “had a brief conversation … at an informal event they both attended late last year,” and staff members in the treasurer’s office have contacted their colleagues at City Hall. “The administration will reach out to the general treasurer and her team should we need assistance,” Ortiz said.

Skeptical of local pension oversight

Raimondo and Taveras are on the new commission created to study the 36 local plans, and she wants to push the panel to explore “creative ways” to transition the plans into MERS, possibly through legislation. Finding a way to do so is “not easy or obvious,” particularly since they’re all in different situations, but “there’s an answer for every one,” she said.

Raimondo’s office organized a well-attended workshop last Tuesday to help municipal officials start tackling their pension problems, and the treasurer said the response was positive. Some cities and towns aren’t sure about who is on their pension boards or whether they’ve ever received fiduciary training, she said.

Suspending COLAs without taking other steps to change their pension systems could leave cities such as Providence more vulnerable to having their decisions overturned by the courts, Raimondo said. “It’s not a comprehensive solution, and it puts you on much shakier ground legally,” she said.

Asked whether there was any reason a city or town should run a pension plan on its own, Raimondo said: ”It’s hard to figure out why they should. There are just so many economies of scale to having the assets managed centrally, to having a single pension system in the state,” including uniform benefits for public workers in all communities.

‘Keep elected officials accountable’

While the local pension plans’ problems are garnering most of the headlines this winter, Raimondo is spending much of her time implementing the sweeping state pension overhaul signed by Governor Chafee in November. She expressed confidence the law won’t be overturned in court, though she acknowledged: “I worry about it.”

“It’s a little early to say” how the implementation of the pension law is going, Raimondo said. “There’s still a certain amount of confusion and lack of information about what the law does.” Many employees incorrectly think they have to work until age 67, which is true only for those with fewer than five years of service.

Raimondo said her office plans to spend the next two months doing outreach to raise awareness about the details of the law among public employees, including regional education sessions, online information, tutorials and an updated pension system handbook.

The other big initiative is selecting a firm to create and manage the law’s new defined-contribution retirement plan, which will receive $100 million to $150 million in funds annually. Raimondo said a transparent process should allay any concerns among voters about whether her staff’s close ties to the finance industry could impact the bidding.

“We’re doing it all out in the open, and anyone that has any questions or wants to come to any meetings or go online and look at many of the information should go online and do that – and I encourage them to do so,” she said. “That’s what the job of the people is, to keep elected officials accountable and honest.”

Rhode Island ‘energized for change’

Pensions are probably Raimondo’s top concern, but they’re not her only one.

The treasurer said she is planning to spend “a lot of time” in February and March ”selling Rhode Island” in meetings with institutional investors who buy the state’s bonds, in the hopes that doing so will raise demand for the bonds and reduce the state’s borrowing costs.

Raimondo is also looking for other ways to support the state’s 39 cities and towns, including by establishing the new Ocean State Investment Pool to centrally manage their cash and other liquid assets, and by having Deputy Treasurer Mark Dingley offer tips on how to improve their bond disclosures, which the state did last year in response to an ongoing SEC investigation.

“In some ways, they have the hardest job in government,” she said. “Running cities and towns in a time of economic slump, combined with these vestiges of pensions and health care, is really hard. … They’re also strapped. That’s what I’m realizing. They don’t have the resources. … I think we have to help cities and towns, no doubt about it.”

On a personal level, Raimondo said she’s gotten used to being recognized on the street over the past year, and often gets a thumbs-up from passers-by. ”I just feel like Rhode Island is energized for change and for a brighter future, and that’s awesome,” she said.

Ted Nesi ( tnesi@wpri.com / @tednesi ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. This is the second of two articles with highlights from the Raimondo interview.

(photo: Ted Nesi/WPRI)

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10 Responses to “Raimondo: Move 36 local pension plans into state-run system”

  1. [...] Raimondo: Move 36 local pension plans into state-run system By Ted Nesi PROVIDENCE, RI (WPRI) – Treasurer Gina Raimondo thinks the best way to fix the state's 36 locally run pension plans is to move them into the state-run system. But making that happen will be easier said than done. “I believe that, ultimately … Read more on WPRI-TV 12 (blog) [...]

  2. Interesting to note that municipalities can file bankruptcy, while states (AFAIK) cannot.

  3. What is the rationale that makes the “best way to fix” the 36 municipal plans putting them into the state plan?? Where are the facts and figures that make that a consideration????

    Did I miss that??

  4. GaryM says:

    I’m beginning to question Treas. Raimondo’s reputation as a clear thinker.

    There is nothing preventing the municipalities from creating a mirror image of the MERS state run plan at a local level. For example, how hard is it to remove overtime as counting towards a final pension in the local plans (overtime counting towards a final pension is disallowed in MERS). That change can be done immediately.

    Why should state taxpayers run the risk of having to absorb local pension liabilities? Creative actuarial math is sure to happen if the “crony capitals” of RI are allowed to blend their liabilities into the more responsible state run MERS plan.

    And we still have not tested in court all the proposed state pension changes Treas. Raimondo has made to date, yet we are counting those savings as if they are already in the bank. We seem to be overrunning the headlights here.

    There are better ways to move forward.

  5. Kyle says:

    Moving locally administered plans into MERS would be a step in the right direction if only it wasn’t such a complicated process. The rationale behind doing this however, is sound. It would allow the plans to be analyzed in a more structured system that required significant funding levels and would make tracking progress (or lack thereof) much easier. As GaryM notes, making state taxpayers foot the bill is not ideal, but there are few other options and this path may allow us to avoid more municipalities slipping into recievership. Furthermore, if we are going to address issue of fairness here, imagine how municipalities who have been responsibly funding their plans through MERS for years will feel when they are suddenly lumped in with massively underfunded “at risk” plans.

    But this gets us away from the main obstacle here – that these locally administered plans are often so different from one another that merging them into MERS, or even a system created from scratch would be a massive undertaking. This would require a significant investment of time and resources – two things that the state and most municipalities are currently lacking.

  6. Doug from South County says:

    Kyle is absolutely right. One thing that continues to haunt this entire issue is how the individuals responsible for these quagmires have escaped enmass with there names not told. In many cases the very people responsible have been elevated to near sainthood in their communities with public buildings named after them or held in high local esteem for holding down the tax rates. In some cases they are sucking at the teat through special deals that allowed them to get underfunded pensions. In other words, they bought in a rates not allowed to the average employee. I know that was and is the case in at least one coastal Washington County town. To top that one, in the same town one such person sits on the pension board. Talk about the fox guarding the henhouse!

  7. Ed says:

    I like that the acronym is MERS. It sounds like a disease that can’t be cured. The Rhode Island taxpayers have too many parasites sucking the blood out of them. The parasites are the overpaid public sector.

  8. Jim Donahue says:

    Leave the local plans right where they are.

    I want no part of bailing out Providence or any other sanctuary cities.

    Let those munis declare Chapter 9.

  9. [...] has repeatedly expressed confidence that the whole pension law will stand up in court, although she told WPRI.com last month she worries about the alternative. Chafee has expressed more concern; his administration [...]

  10. [...] many of the information should go online and do that – and I encourage them to do so,” Raimondo told WPRI.com last [...]