NEW REPORT: Local Pension Funds Going Broke

Wednesday, February 16, 2011

Stephen Beale, GoLocalProv News Editor

 

View Larger +

As bad as things may be with the state pension fund, it’s even worse for pension systems in cities and towns across Rhode Island, according to a report released yesterday by a state Senate commission.

The report shows that local communities have a total unfunded liability of nearly $4 billion—that figure represents almost $2 billion in unfunded pension liabilities, plus another $2.4 billion in other retirement benefits, such as health care for retirees. While the existing state system for municipal retirees—known by the acronym MERS—had an 11.7 percent unfunded liability, cities and town pension systems were 57.2 percent unfunded, according to the latest available data.

“Rhode Island’s locally-administered municipal pension plans have received increased scrutiny because they are significantly under-funded and are posing a substantial risk to overall municipal fiscal health,” the report states. “The primary concern is ensuring that adequate funds will be available to meet benefit payments promised to retirees.”

GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST

The 23-page report was both embraced and criticized by local leaders yesterday, who said a lot of the key details still have to be worked out. “The devil’s in the details here and there are a lot of details in pensions … as to who do you affect,” said Peder Schaefer, the associate director of the Rhode Island League of Cities and Towns. “I don’t think that report really gets into those details.”

Local leaders skeptical of one-size-fits-all solution

The report makes more than a dozen recommendations, including a proposal to move local pension funds into the state system and key changes to disability pensions—such as a provision that allows partially disabled retirees to collect only half of their work salary while on a disability, rather than two thirds, as is the case right now.

Some recommendations were embraced by local leaders, while others got some pushback yesterday. In particular, the move to merge all city and town pension funds with the state system was criticized for failing to take into account the fact that not all local funds are in trouble.

View Larger +

Warwick Mayor Scott Avedisian told GoLocalProv that would help those communities that had not been making annual contributions to their pensions while “penalizing” those that had been responsible. “If you just lump everybody together, that’s not fair to every community,” Avedisian said. He added: “Where’s the incentive to have managed your community well?”

In Warwick, for example, he said some pension systems are fully funded. For those that are not, he said the city has a plan to ensure that they will be fully funded.

Cracking down on disability pensions

Schaefer told GoLocalProv that he expects other cities and towns will also resist a move to incorporate everyone into the state system.

But he said the league supports most of the recommendations made by the Senate commission, formally known as the Senate Municipal Pensions Study Commission. One of the most significant recommendations, he said, is a series of changes to disability pensions. “There is some evidence that there is a lack of consistency in disability review by individual municipalities,” Schaefer said.

View Larger +

Another big change would be for police and firefighters who are placed on Injured on Duty status. During this time, police and firefighters receive 100 percent of their regular salary plus benefits. Under current law, this situation can go on indefinitely—that’s something that should change, the commission says. It is recommending that injured-on-duty employees apply for a disability pension within 18 months of being placed on injured leave.

The commission also is asking the Rhode Island Department of Administration to look into the feasibility of extending workers’ compensation coverage to police and firefighters.

Funding gap only widening

One of the biggest issues with the $2 billion unfunded pension liability is that many communities simply are not doing what it takes to close that gap. In 2009, for example, Rhode Island communities owed a total of $295 million to their pension plans, but chipped in only $161 million.

Those costs will only grow larger: retirement benefits are the fastest growing part of city and town budgets—even including education funding, according to the report.

Of the 36 locally-administered pension plans, 23 are deemed “at risk” by the state Auditor General because of the low ratio of assets to liabilities.

Not one, but two unfunded liabilities

And pensions are only half of the picture when it comes to retirement benefits. The other half is health care and other additional benefits—known in accounting lingo as Other Post-Employment Benefits, often simply referred to as OPEB. Communities spent a little over $100 million in 2009 to support these benefits—$90 million less than what was needed that year.

The total unfunded OPEB liability for all cities and towns was $2.4 billion. Collectively, the trust funds communities have set up for these benefits are more than 99 percent unfunded, according to the report.

 

View Larger +


 

 

Related Articles

 

Enjoy this post? Share it with others.

 
 

Sign Up for the Daily Eblast

I want to follow on Twitter

I want to Like on Facebook