PROVIDENCE, R.I. (WPRI) – The shortfall in Rhode Island’s 34 independent municipal pension plans has hit $2.8 billion, up from $2.5 billion a year ago, though many are making progress in bolstering their funding, according to a newly released study.
The fourth annual report by General Treasurer Seth Magaziner’s office found over half of the plans — 20 out of 34 — remain in “critical status,” meaning they have less than 60% of the assets needed to cover promised retirement benefits. However, that is down from 21 plans last year.
The health of the independent municipal plans – which are not part of the state-run Municipal Employees Retirement System – has been a major concern in the last decade, particularly after Central Falls filed for bankruptcy in 2011. The annual study was mandated by lawmakers in 2016 to keep tabs on the plans.
The yearly study offers a “report card” – though no letter grade – for all of the plans that remain open to new beneficiaries. It also provides detailed data on so-called “closed” plans that no longer enroll additional members but still owe benefits to others.
“While Rhode Island has made progress in improving the health and transparency around local pension plans, more work remains to make our locally administered pension plans sustainable,” the report warned.
Across Rhode Island, 16 communities have at least one pension plan in critical status: Bristol, Coventry, Cranston, Cumberland, East Providence, Johnston, Narragansett, Newport, North Providence, Pawtucket, Providence, Scituate, Smithfield, Warwick, West Warwick and Woonsocket.
By far the biggest problem is in Providence, where the city’s pension woes are well documented. The pension system there was only 22% funded as of June 30, with a shortfall of roughly $1.2 billion that has been worsening in recent years, in part due to officials adopting more conservative assumptions.
The report card from the treasurer’s office did give Providence five out of five stars in multiple categories, including making its full actuarially required deposit in recent years and adopting a 7% investment return forecast.
Providence Mayor Jorge Elorza is currently seeking to drum up support at the State House to let the city borrow at least $750 million from investors to put in the pension fund. Initial hearings on the plan are expected to be scheduled soon.
(In an interview Thursday, Gov. Dan McKee expressed skepticism about Elorza’s proposal, telling 12 News, “That’s a rolling of the dice, and the people in the city should know and the people in the state should know. … I think you need to be really careful.”)
According to the treasurer’s office, the healthiest independent pension plan is the Middletown town employees plan, which is 97% funded; the unhealthiest plan is Coventry’s police plan, which is just 24% funded.
Very low funding levels were also reported for plans in Cranston, Johnston, North Providence, Scituate, Warwick, West Warwick and Woonsocket.
The good news in the report included the fact that the lion’s share of the plans made their full actuarially required deposits into their pension plans in the most recent year, as well as the fact that over half are using a relatively conservative long-term investment forecast of 7% returns or lower.
However, in six communities — Cranston, Pawtucket, Providence, Narragansett, West Warwick, and Woonsocket — annual payments into their pension plans now account for more than 10% of their total tax levy. The report noted that could mean spending on retirement benefits is “crowding out other important budget priorities.”
The report also flagged other concerns in some specific communities.
In Warwick, the report notes the city did not make the required deposit into its school employees pension plan in 2020. Warwick Superintendent Philip Thornton confirmed the School Department skipped the payment, attributing the decision to “budgetary considerations.”
East Providence was the only community which did not have an up-to-date 2020 pension report available for the treasurer’s office. Patricia Resende, a spokesperson for Mayor Bob DaSilva, said the report “should be out in a few weeks” but was pushed back in order to update the mortality assumptions it contains.
Resende acknowledged the pension plan’s funded status has decreased in recent years, but said it was a result of East Providence leaders adopting more realistic long-term assumptions.
“The changes reflected a more conservative approach which is beneficial to the plan in the long run,” she said in an email. “The more conservative the assumptions, the less the plan is funded, the more the city has to contribute on an annual basis, the healthier the plan becomes over time.”
The report noted that Smithfield has not made the full required deposit to its fire personnel pension plan for the last four years. But Smithfield Town Manager Randy Rossi said the town has an unusual provision in its collective bargaining agreement with its firefighters that says they, not taxpayers, will have to cover any shortfall in the pension fund if that were to happen.
“In all honesty, being fiscally responsible, I would never let it get to that point,” Rossi added.
Cranston is currently using the highest investment return assumption in Rhode Island for its police and fire pension plan, forecasting that it will earn an average of 7.9% a year. (A higher expected rate of return means a community has to deposit less money in the pension plan today.)
A spokesperson for Cranston Mayor Ken Hopkins did not respond to a request for comment on why the city is using an unusually high investment forecast.
The entire study, including information on all 34 plans, is available here.
Ted Nesi (email@example.com) 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 and Facebook
Kim Kalunian contributed to this report.