Portsmouth slices pension fund’s investment outlook to 6.75%
June 12th, 2012 at 5:00 am by Ted Nesi under Nesi's Notes, On the Main Site
Portsmouth’s leaders are breaking with the rest of Rhode Island when it comes to pensions.
The Portsmouth Town Council voted last month to slash its locally run pension plan’s projected rate of return from 8% to 6.75%, making the Aquidneck Island community one of the most risk-shy anywhere. The state lowered its return forecast from 8.25% to 7.5% last year.
A pension system’s rate of return forecast is part of what determines the annual deposit taxpayers must make to keep the fund solvent. The lower the projected return, the less the pension fund’s investments are expected to earn – and therefore, the more money taxpayers need to put in up front.
At 6.75%, Portsmouth may have set the most conservative investment outlook in the state. A study by the auditor general’s office last year found the lowest rate of return used by any municipality was 7% in Warwick, Jamestown and Coventry; the average among all 36 locally run pension plans was 7.81%.
Portsmouth and other Rhode Island communities with independent pension plans were ordered to obtain new studies of their financial health under a provision of the landmark state pension law enacted last November, and many are now grappling with the results.
The new rate of return and other changes cut the Portsmouth pension system’s funded level from 61.5% to 51.7%, Town Administrator John Klimm told retirees in a letter mailed to them in May. “I am working with our actuary, pension investment adviser, and Town Council to improve the plan’s funded status,” he wrote.
The new 6.75% forecast in Portsmouth is even lower than the 7.25% that was proposed to the Republican-controlled council by its actuary and investment consultant, the Newport Daily News reported. The vote in favor was 4-2 and will add $1.2 million to the town’s 2013-14 budget.
Rebecca Sielman, an actuary with Milliman, said Portsmouth’s pension plan would be 55.3% funded, about 3.6 percentage points higher, if the council had opted to use a 7.25% investment forecast. Rhode Island law defines pension plans as “critical” if they are less than 60% funded.
The Portsmouth pension plan had 286 members as of July 1, 2011. The number of retirees collecting a pension from the plan rose to 83 last year, up from only nine in 2001. Taxpayers’ yearly contribution to the pension plan spiked from $1.2 million in 2002-03 to $2.8 million in 2012-13.
• Related: Investment expert: ‘Getting 7.5% … is going to be a challenge’ (Oct. 28)
(photo: Wikipedia)
Tags: investments, john klimm, non-MERS, pensions, portsmouth, portsmouth town council
Nesi's Notes covers politics and the economy in and around Rhode Island for WPRI.com. (Twitter: 
Since smaller funds pay higher fees as a percentage of overall assets, there MIGHT be a rational, as opposed to a political, basis behind this, but I fear otherwise. The question is what assumptions are used to arrive at the 6.75% return. The calculation should be expected inflation + expected return over inflation – fees. 6.75% seems a bit low – in fact – didn’t some of the 38 Studios Bonds pay a higher rate of return than that?
Doesn’t the T-Party dominate the Portsmouth Council? Can this be seen as a move to sabotage the pension plan because the don’t believe in public pension…period?
Hey Fish public sector “employees” are not special. You and your brethern need to be have a 401K where you have to contribute your own money and are RESPONSIBLE for how the money is invested.
I find it amazing that several of the non-mers pension systems are now finding creative ways to get down to Tier 5 “critical status” under 60% funded to qualify for the Chafee legislation if it should pass.
As they should be.
Public Sector Collective Bargaining should be outlawed.
Public Sector Unions are a CANCER on Society.
Look at bands paying 0.50%, and CD’s paying 2.00% I think 6+% is 3% to high.
If you bite the bullet and go to 3% it will cost some now but save you big time in a few years.
Ted
Look deeper into why RI State Pension System returns have been so bad in the last decade with just a 2.4% annually according to your 1/26/2012 Article. According to an article on the wall street journal “Pension Gaps Loom Larger” dated 9/18/2010. The Oregon Public Employees Retirement System has had a 8% assumption since 1989, its actual return from 1970 to 2009 averaged 10.7% annually. The teachers retirement system of Texas has had similar expectations since 1986 with an actual return of 9% since then. It would be interesting to see why RI returns are so bad, what where we invested in compared to Oregon and Texas, and who made money off the fund when is was performing so bad, what investment firms, maybe Politicians? Was the poor performance done on purpose with the idea to pass pension reform’s down the road.
Simple answer: old apples to young oranges.
The RI number is for “the last decade”. From 2002 to today, the stock market hasn’t grown a whole lot. Hardly any investments have done all that well.
Oregon and Texas numbers average in the stock market boom from 1982 to 2000.
Look at numbers from 2002 to today for all three states and none of them will be averaging 8%.
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