Riley: Time to Review Why 16 RI Municipal Pension Funds Shouldn’t Be Shut Down

Tuesday, February 07, 2017

Michael G. Riley, GoLocalProv MINDSETTER™

Approximately two years ago, the Local Pension and OPEB Study Commission reported on local pension plans which are critically under-funded (funded ratio of less than 60%) as well as issues pertaining to other post-employment benefits.

Formed in 2011 as part of Pension Reform, this commission focused on data gathering and induced compliance. In January 2015, the commission produced a report to the Governor and General Assembly that contained a series of recommendations.

My analysis show that few, if any of the cities and towns labeled as “crisis” have followed through on their commitments to address the severe underfunding issues. Some have actually gone backwards. Most of the projected unfunded liabilities reductions have not been met and some appear as hopeless in terms of any possible reason these towns should be managing a defined pension plan. It is time we removed from these towns the ability to manage their own plans.

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The commission met 39 times from 2011 through 2014 and came up with a series of recommendations. Some are quite helpful but given the lack of follow through it is clear that the Governor, after avoiding the Municipal issue for years, needs to make responsible and immediate decisions to deal with "zombie" Rhode Island towns.

The report concluded that a “one size fits all” approach to boosting sustainability of these funds was not appropriate. I vehemently disagree. The behavior of these critical status towns indicates the towns and their officials don’t belong managing a pension plan and should be shut down en masse. They should be expected to follow strict guidelines of funding and accounting.

Recommendations Considered:

"The Commission has considered eleven recommendations to improve local pension and OPEB plan health and help municipalities meet the challenge that will ensure sustainable benefits that are also affordable and competitive. We’ve taken great effort to incorporate dissenting viewpoints in this document so that legislators can fully and objectively assess alternatives."

Establish an oversight board
Expand legislation requiring fiscal impact statements
Require an annual funding notice
Expand proposed budget language in municipal disclosure process
Continue funding municipal incentive aid program
Study feasibility of administering a voluntary program to invest plan assets
Consider expanding criteria for oversight under the fiscal stability act
Develop a voluntary MERS pathway
Continue to monitor OPEB plans
Consider funding improvement plans for OPEB
Consider establishing a state-wide OPEB trust

The report can be found here. In the coming weeks, we will review the proposals of the 16 to 18 towns made to the commission in 2013 and their unfunded liability projections for 2016. Let’s just say it is not pretty.

Riley: Time to Review Why 16 RI Municipal Pension Funds Shouldn’t Be Shut Down

Related Slideshow: Top Providence Pensions

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