retirement

Chafee, Raimondo eye far-reaching pension changes

March 17th, 2011 at 6:00 am by under General Talk

Rhode Island taxpayers and state workers are likely to face much higher pension payments under new policies being seriously considered by Gov. Lincoln Chafee and General Treasurer Gina Raimondo that have received scant attention up to now.

The Chafee administration quietly disclosed last week that it’s weighing a major change in how taxpayers and workers divide up the escalating cost of annual contributions to Rhode Island’s state pension fund. The idea was buried deep inside official budget documents reviewed by WPRI.com.

The result could be even more money withheld from state workers’ wages than under Chafee’s initial proposal to raise their contributions from 8.75% to 11.75% of each paycheck.

At the same time, Raimondo has ordered a full review of Rhode Island’s long-term pension obligations and warned that actuaries may double their estimate of the state’s unfunded liability from the current $4.9 billion figure to as much as $10 billion. Since that number determines the size of the annual payment required to keep the pension fund solvent, hiking it could force a large increase in the yearly contribution paid for jointly by taxpayers and workers.

Chafee and Raimondo, whose offices are working together to tackle the pension problem, discussed their plans during recent appearances on WPRI 12′s “Newsmakers.” But the full implications of their efforts – and the impact they would have in combination – haven’t been spelled out in full until now.

“I really think we want to look at this comprehensively with General Treasurer Gina Raimondo in the months ahead,” Chafee said on “Newsmakers” last Friday.

The administration’s first budget proposal “didn’t take a comprehensive look at the pension fund,” Chafee said.¬†”That will come, though – it’s on the front burner.”

Cost to taxpayers ‘just soaring’

Rhode Island had $6.8 billion in assets on hand to cover $11.5 billion in future pension payments to the system’s 65,573 active and retired members as of June 30, 2009, Treasury documents show.

(more…)


Why RI’s 39 cities and towns have 146 pension plans

February 16th, 2011 at 11:40 am by under General Talk

I’ve been reading the final report [pdf] of the R.I. Senate Municipal Pensions Study Commission, which was released yesterday. WRNI’s Ian Donnis had highlights from the press conference where it was unveiled.

There’s not much new in the 23-page document for those of us who cover the issue of government retiree costs closely, but I did find this striking (emphasis mine):

Municipal pension benefits are provided through either the State-run Municipal Employees Retirement System (MERS) or through locally-administered plans. Currently, the State of Rhode Island administers MERS for approximately 110 municipal pension plans for approximately 30 municipal governments. Thirty-six non-MERS pension plans are locally-administered by 24 communities.

Thus, according to this report, Rhode Island’s 39 cities and towns have established a total of 146 different pension plans among them – an average of more than three plans per municipality. Some places have separate plans for general government workers and police and fire personnel. Then there are plans for water districts, housing authorities and other groups.

The total number sure seems like a lot. But Dan Beardsley, executive director of the Rhode Island League of Cities and Towns, told me the number of different pension plans isn’t actually at the root of the problem.

That’s because all 110 of the plans in MERS pool their investments and administrative costs and share the same benefit structure. And MERS is 88% funded, with $1.2 billion in assets and $1.3 billion in long-term liabilities; actuaries say 80% is generally enough for a government pension plan.

The real problem, then, lies in those 36 locally administered plans. They have $1.4 billion in assets but $3.3 billion in liabilities – a net unfunded liability of $1.9 billion.

“It’s the dramatically different benefit structure of many of the private plans that are causing communities not to be able to meet their annual required contributions” to their pension funds, Beardsley said.

Those 36 plans are scattered through many of the state’s most fiscally squeezed cities, including Central Falls, Cranston, East Providence, Johnston, Pawtucket, Providence and West Warwick.

So the big question is what’s going to happen to those 36 plans. The communities in question are not allowed to dump their accumulated liabilities into MERS – although it’s possible that could change. Will cities and towns just suck it up and plow taxpayer dollars into these pension funds until they make them whole?

Beardsley, for one, doubts it. “I think many of the problems are going to necessitate major overhauls of the system, of the present benefit structure,” he said. “The liabilities are unsustainable.”

But aren’t those promised benefits protected by law and basically unchangeable?

“It will be difficult, because there will be costly litigation involved,” Beardsley replied. “But that’s not to say it shouldn’t be attempted.” He expects to see municipalities start moving to overhaul promised benefits as soon as this year – and huge lawsuits to follow.


RI pension gap jumps to $4.7B. Or $4.9B. Or $6.5B.

February 8th, 2011 at 11:39 am by under General Talk

Strap on your pith helmets – it’s time to take another safari deep into the weeds of the state pension system.

Rhode Island’s unfunded pension liability grew to $4.75 billion as of June 30, 2009, up from $4.22 billion a year earlier. Those figures represent¬†the gap between the pension fund’s current assets and how much it will need to pay retirees over the next 20 years; Rhode Island’s was fourth-worst in the nation as of 2008.

But wait – the pension gap was originally reported to be $4.36 billion as of June 30, 2008, not $4.22 billion. How did $140 million worth of liabilities – the difference between the original and revised June 2008 estimates – disappear into thin air?

Article 16 of the 2010-11 budget. That’s the law the General Assembly passed last year to cut future pension benefits for “non-grandfathered members” of the retirement system.

According to the latest annual report from the Employees Retirement System of Rhode Island, Article 16 cut the June 2008 unfunded liability estimate by 3%, from $4.35 billion to $4.22 billion. It also reduced the state’s annual pension contribution by 8% in 2009-10 and 2010-11.

And of course, that’s a permanent change in how the liability is calculated, so it affects this year’s, too. Hiking the June 2009 estimate by 3% would raise it to $4.89 billion, an increase of $150 million. That’s probably too simplistic a way to do the math, but I’m not an actuary.

Why does all this matter? It could – could – be part of what the SEC is looking into as part of its investigation into Rhode Island’s bond disclosures. The reduction in liabilities and contributions buried in the report fits the Illinois accounting trick that, according to The New York Times, has caught the SEC’s attention in that state.

In addition, all the estimates I mentioned above – Article 16 or no Article 16 – are based on the state getting an average annual return of 8.25% on its investments in the future. Change that number and all the others change, too.

As I reported in October, an analysis done for the Treasury last year showed that reducing the expected return to 6% would have ballooned the June 2008 liability estimate by more than $2 billion – from $4.4 billion to $6.5 billion. So there’s a lot of moving parts here.