More than one-third of Rhode Island’s 34 locally administered pension plans are in critical-funded status with a combined shortfall of more than $2.4 billion, according to a report from Rhode Island’s Office of the General Treasurer.
“The condition of municipal pension plans is of great importance to the public employees who rely on pensions for retirement security, and to the taxpayers who fund pension systems,” Rhode Island state Treasurer Seth Magaziner said in a release, adding that “many municipal pension plans face significant challenges.”
The report details key information on the status and trends of each of the state’s 34 locally administered pension plans, and includes individual report cards on the health and outlook of each plan. The report cards outline how the various plans performed across a range of key metrics in order to provide an overall sense of the health and outlook for each pension system.
The metrics used for the report cards include funded status ratio, funded status ratio trend; consistency of meeting annual required contributions; amortization period for current unfunded liability; negative amortization; investment return assumption; payroll growth assumption; net cash flow; and active to retiree ratio.
In the 48-page report, the treasurer’s office found that more than one-third of Rhode Island’s local pension systems are less than 60% funded, and are therefore considered to be in critical status. It also found that the funded statuses for 13 plans have decreased during the four years ending in fiscal year 2016, and that “many plans have investment return and payroll growth assumptions that may not be realistic.”
Additionally, some communities have not consistently made the full actuarially required contributions to their pension plans over the past four years, and “in more than a few cases,” the share of the municipal annual required contribution payment to a community’s total tax levy is as high as 10% to 20%. The report said this suggests that the liabilities of these local pension systems are potentially crowding out other necessary public investments.
“While Rhode Island has made progress in improving the visibility and transparency around local pension plans, more work remains to make our locally administered pension plans sustainable,” said the report. “In some communities, the condition of municipal pension plans has reached such a critical state that the outlook for those systems is uncertain in the absence of corrective action.”
Despite the gloomy report, there were a few positive trends. The treasurer’s office found that the funded status for 17 plans have increased during the four years ending in fiscal year 2016, and that most municipalities met or exceeded their annual required contribution payments over the past four years. It also found that 12 plans have assumed rates of return at or below 7.0%, which it said indicates that they have a strong funding policy, and are less likely to face future unexpected shortfalls than plans with higher investment return assumptions.