CRANSTON, R.I. (WPRI) — When the treasurer’s office released its annual report on municipal pension plans last month, Providence stood out as always for its massive shortfall, which at $1.2 billion is orders of magnitude larger than any other community’s.
But the report shows Rhode Island’s second-largest city, Cranston, is also a pension outlier these days.
Cranston’s old police and fire pension plan closed to new hires in 1995, when the city began moving new hires into the state-run Municipal Employees Retirement System.
As of last year, the old police and fire plan still had 419 retired members, as well as 11 active ones. Its liabilities totaled $297 million, with only $68 million in assets saved to cover them, giving the plan an anemic funded rate of just 23%.
Where the old Cranston plan is a real outlier, however, is in its rosy investment assumptions. The city assumes the plan’s investments will earn an average return of 7.9% per year, the highest of any plan in the state.
A higher investment return assumption reduces the amount of money taxpayers have to put into the pension plan each year, taking pressure off the city budget. But it can also worsen the system’s funding over time if the return falls short and not enough money is deposited annually.
The state and other municipalities have been reducing their pension systems’ return assumptions over the last decade, with officials usually saying the more conservative numbers are more realistic. The state and Providence are only using a 7% return forecast these days.
Cranston Mayor Ken Hopkins, a Republican who took office in January, referred comment to Robert Strom, who has been the city’s finance director since 2009. Strom noted that the police and fire plan earned 7.8% a year from 2009 through 2020 under its old investment adviser, Janney Montgomery Scott, nearly meeting its assumption.
The city’s investment committee voted last September to switch from Janney to a new firm, Canton Hathaway, which so far posted returns of 7.2% for the final four months of 2020 and 7.6% for the first five months of this year.
Noting that the city “consistently” made its annual contribution to the pension fund over the last decade, Strom said, “Over the past 25 years, the funding level has improved from approximately 7% to 23%. Annually, the pension fund actuary reevaluates the assumed rate of return and the city will comply with such expert advice.”
Maria Bucci, who lost to Hopkins in last year’s race for mayor and is now chair of the Cranston Democratic City Committee, criticized Hopkins for maintaining the 7.9% return assumption.
“While our pension being in critical status is not new information, I’m troubled with the news about the lack of progress and the continued reliance on unrealistic investment returns to depress our annual investments,” Bucci said in a statement issued by the city Democrats.
She added, “We also have an obligation to our hardworking public safety personnel to ensure that the pension system is responsibly managed and that the benefits they have been promised through collective bargaining are adequately provided for.”
Strom said Hopkins is committed to making the full annual payments to the plan as determined by its actuaries.
“The city’s pensioners should not be alarmed by propaganda statements from political adversaries,” he said. “The city’s pension fund is in better shape now than it has been in decades and it will continue to improve.”
“Distracting political banter from a few disengaged naysayers should not be concerning to our taxpayers,” he added.
Ted Nesi (firstname.lastname@example.org) is a Target 12 investigative reporter and 12 News politics/business editor. He co-hosts Newsmakers and writes Nesi’s Notes on Saturdays. Connect with him on Twitter, Facebook, LinkedIn and Instagram