Target 12: Pension board didn't meet as shortfall soared to $8 million

SCITUATE, R.I. (WPRI) - The officials charged with overseeing Scituate's troubled police pension plan held next to no meetings for more than a decade as the plan's cash shortfall quadrupled to $8 million, a Target 12 investigation has discovered.

Between the middle of 1999 and July 2011 - a time period that spanned the Clinton, Bush and Obama administrations - the Scituate Police Pension Board held exactly one meeting, on May 8, 2006, where members discussed collective bargaining but not the health of the plan, according to records obtained by Target 12 and confirmed by local officials.

Over that same 12-year stretch the police pension plan's unfunded liability - the shortfall between benefits owed to officers and the assets set aside to pay them - soared from just under $2 million to more than $8 million, leaving the plan only 28% funded, an analysis of Scituate's municipal audits reveals.

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The $8.2 million unfunded liability in the police pension plan is equal to nearly a third of Scituate's $26.8 million town budget last year. A 2011 study by the Rhode Island Auditor General's office found Scituate's pension funding was the third-lowest in the state.

The chairman of the Scituate Police Pension Board throughout its 12-year hiatus was Theodore Przybyla, a Republican who was the elected treasurer there from 1996 until last November, when he lost his bid for an eighth term to Democrat Sharon Johnson.

Chairman unaware if board met

When Target 12 first asked whether it was true the pension board had met only once between 1999 and 2011, Przybyla didn't know the answer despite the fact that he was its chairman.

"Karen, is the meeting question correct. Ten years without a meeting seems unlikely," Przybyla replied in an email apparently meant for the deputy treasurer, Karen Beattie, but instead sent to Target 12. Beattie later confirmed that there was no evidence the pension board had met more than once during those years.

Przybyla refused multiple requests for an interview to discuss his oversight of the plan. Target 12 finally tracked him down in the parking lot of Coventry Town Hall, where he works as the finance director. Przybyla again refused to answer questions, saying the unexpected interview was "not appropriate" and then disappearing into town hall.

In an email sent the next morning, Przybyla said questions about the pension plan should be directed to Johnson, who replaced him as treasurer in January. He said members of the town council are responsible for dealing with the pension plan, not the treasurer and the pension board, and that he'd provided the council with documents and other information that discussed its finances.

Przybyla will get a pension

Przybyla argued the pension board's primary role is to approve applications for disability pensions. Legally, however, that's not the case: Target 12 confirmed that the Scituate Police Pension Board is the entity with fiduciary responsibility for the police pension plan.

The board "is responsible for the overall administration of the plan pursuant to the terms of the plan," Beattie, the deputy treasurer, told Target 12 in an email. "In that capacity, the committee exercises control and discretion of the plan and has a fiduciary responsibility to the plan. This would be a fiduciary responsibility in the respective official capacities of the committee members."

Przybyla's contention that the board is only responsible for disability applications also contradicts its actions once he started holding meetings again on July 20, 2011. Minutes show the board received a briefing that day from the investment firms that manage the plan, who warned them about the funding shortfall and convinced them to lower their investment return forecast from 8.25% to 7.5% a year.

From 1997 to 2007 Scituate's set its expected return on investments even higher, at 9%. A higher projected rate reduces how much money a town must deposit into the plan, saving money up front but increasing the risk of a shortfall if investments don't perform. The plan's actual rate of return from 1999 to 2011 was 4.57% a year.

Ironically, Przybyla himself will receive a pension for his service overseeing the town plan: a state official confirmed he earned 13 years' worth of pension credit during his time as Scituate's elected treasurer. However, his pension will be funded out of the healthier state-run system for municipalities.

Lawmaker: Town residents 'shocked'

State Rep. Michael Marcello, a longtime critic of Scituate leaders' pension decisions, said many town residents are only now realizing the scale of the problem. "I think most people were probably shocked that Scituate - which prides itself in being a fiscally conservative community - had such a huge unfunded liability, one of the worst in the state," Marcello, D-Scituate, told Target 12.

Scituate officials have been overly optimistic about the pension plan for years. Przybyla's predecessor, Brian Blanche, dismissed concerns raised in 1997 when he finished a 10-year stint as treasurer.

The problem "is not half as bad as it looks on paper," Blanche, a Republican, told The Providence Journal at the time. "People seem to be a bit alarmed about it, but they shouldn't be, because I don't think it's in that bad shape." The shortfall then was $1.8 million, or $6.4 million less than it is today.

The situation exemplifies why Rhode Island officials from Gov. Lincoln Chafee on down have serious concerns about the 36 pension plans that are managed independently by cities and towns without direct state oversight. The General Assembly has largely ignored proposals backed by Chafee and most mayors to authorize the suspension of cost-of-living increases for retirees in the plans.

Town fails to deposit enough

Scituate created its locally run police pension plan in October 1981; before that date the town's police officers were part of the state-run Municipal Employees Retirement System, which is in far better financial shape. The local plan provides officers with an annual pension worth 60% of their base pay after 25 years of work. It had 33 members total as of April 2011, with 12 of them retired and four more disabled.

Marcello said he was "shocked and disappointed" to learn the board failed to meet for so long. "If you're not meeting for 10 years, I think the natural assumption is everything is OK, there is no need to meet," he said. "And obviously now we know that is untrue. Things were pretty bad."

A key part of the problem: Scituate consistently puts less money into its pension plan than experts say it should.

Actuaries called for a $456,939 deposit in 2005-06; the town put in $413,118. They called for a $673,360 deposit in 2011-12; the town put in $356,611. In other words, Scituate's pension contribution actually went down when the amount it was supposed to contribute went up.

The Scituate Police Pension Board is made up of five people: the treasurer, two members of the town council and two police officers appointed by their union. Its current members are Treasurer Johnson, Town Council Vice President David Hanna, Town Councilor William Hurry, and police union appointees Richard Parenti and Donald Delaere.

Retirees, taxpayers face risks

The board finally set a regular meeting schedule last May and is now discussing how to fix the plan's funding problem. An improvement plan filed with the state suggests reducing cost-of-living increases for future retirees, cutting the value of the pension benefit and boosting employee contributions. The proposal would get the funding level above 60% by 2029, the town says.

The biggest police pension in Scituate goes to former Capt. Steven Bremges, who retired in 2006 and now works in security at Brown University. His pension was $4,003 a month as of last July, according to records obtained by Target 12. Most of the retired officers received between $2,000 and $3,300 a month.

It's projected the police pension fund will run out of money by 2027 if Scituate continues its current funding policy, according to a forecast provided to Przybyla last March by The Angell Pension Group, an actuarial firm. At that point the annual cost to Scituate taxpayers would jump from less than $400,000 to almost $1.2 million.

"For the retirees, I think they have a real concern that there isn't enough money to fund the benefits that they were promised," Marcello said. "For taxpayers the message is look out, because the money will have to be paid in some form or fashion, and it's going to come right out of their property tax bills."

The question of whether Rhode Island's local pension boards are handling their fiduciary responsibilities adequately has been raised repeatedly by Treasurer Gina Raimondo since she took office in 2011. At a workshop for municipal officials she organized last year, Raimondo recommended that the local boards get a lawyer to provide them with fiduciary training.

Raimondo: 'It's the basics'

The treasurer and her aides have emphasized that members of pension boards must act solely in the best interests of the pension plans' members, even if doing so could cause larger budget problems for their communities.

"It's the basics," Raimondo told WPRI.com after the workshop. "A lot of people said, 'I don't know who's on my board. Maybe we should have fiduciary training.' It's about good pension governance."

Raimondo, Marcello and other officials have suggested the state should consider moving all the local pension plans into the state system, though there's no formal proposal on the table for handling such a transition. The 2011 state pension law required municipalities with independent pension plans to conduct new studies of their financial health and then deliver improvement plans if a plan's funding level is below 60%.

"I think it's an issue we probably need to address at the state level, too," Marcello said. "There are a lot of local pension plans that are administered by boards such as these. The question is, are they capable to have the talent to do the job which they are charged to do?"

Another $4 million for retiree health

The Scituate Police Pension Board has had other problems over the last year.

The town's deputy public works director was forced to resign after it was revealed he was collecting a pension and a municipal salary simultaneously, which is against local rules. He began collecting the pension during the period when the board wasn't meeting.

Attorney General Peter Kilmartin's office also found the pension board violated the state's public records law by failing to keep or file meeting minutes and refusing to fulfill records requests.

The police pension plan isn't Scituate's only long-term financial challenge.

The town also has a $4.4 million liability for its retirees' health insurance and has saved nothing to cover it. The town budget for the 2012-13 fiscal year includes $100,000 to begin addressing that second shortfall.

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi

Tim White ( twhite@wpri.com ) is the Target 12 investigative reporter for WPRI 12 and Fox Providence. Follow him on Twitter: @white_tim