PROVIDENCE, R.I. (WPRI) – It turns out Rhode Island’s actuaries weren’t optimistic enough when they predicted what would happen to the state pension system when lawmakers voted to overhaul it four years ago.
A WPRI.com review of actuarial valuations shows the shortfall in the pension fund for state employees has been smaller than originally predicted in every year since the law passed in November 2011.
That remained true even after a negotiated settlement was approved this year that added to the state’s unfunded pension liability. Under the terms of the deal, unions agreed to drop their legal challenge against the law in exchange for sweetening some benefits.
Back on on Nov. 14, 2011, Gabriel Roeder Smith & Co., the state’s outside actuary, predicted that if lawmakers approved the controversial changes to public retirement benefits pushed by then-Treasurer Gina Raimondo, the pension fund for state employees would have a shortfall of $1.96 billion as of June 30, 2015.
Earlier this month, though, the same actuary said the actual shortfall on that date was $1.895 billion, about $65 million less than forecast four years ago – even after the settlement added $103 million to the tab compared with the original law’s provisions.
The improvements came on both sides of the ledger. The actuarial value of the assets for state employee pensions was $2.48 billion, versus a projection of $2.44 billion, while the actuarial accrued liability was $4.37 billion, versus a projection of $4.4 billion.
Another way to look at the numbers: the actuary originally predicted the fund for state employees would be 55.5% funded as of June 30, 2015, but it was actually 56.6% funded when the day arrived.
The same was true of the state’s other large pension fund, for Rhode Island public-school teachers. The actuary had predicted in 2011 that the shortfall in the teacher fund would be $2.714 billion as of June 30, 2015; it turned out to be $2.655 billion, about $59 million less, despite the $148 million tab for teachers from the settlement.
David Ortiz, a spokesman for General Treasurer Seth Magaziner, suggested the numbers indicate the 2011 law is accomplishing what it was supposed to accomplish.
“We’re pleased the pension system is getting stronger,” Ortiz said in an email. “We still have a long way to go, and will continue working hard to restore the system to full health for Rhode Island’s taxpayers and the members of the state’s pension fund.”
Pension math can be arcane, but it has a direct impact on taxpayers. The lower the unfunded liability in the pension system, the less money lawmakers have to come up with in the annual state budget to make the state’s yearly contribution to it.
Along with contributions from taxpayers and employees, the other source of income for the pension system is returns on its investments.
The system’s market return has averaged 9.6% over the last five years, while the “smoothed” return – a tweaked calculation the actuary uses to avoid sharp changes – averaged 5.5% over the same period. Over the long term, the state Retirement Board is banking on the pension system’s investments earning an average return of 7.5% each year.
According to Gabriel Roeder Smith’s original projections from 2011, the pension funds for state employees and teachers will have no unfunded liability as of 2034 if things remain on track.Ted Nesi (firstname.lastname@example.org) covers politics and the economy for WPRI.com. He hosts Executive Suite and writes The Saturday Morning Post. Follow him on Twitter: @tednesi