PROVIDENCE, R.I. (WPRI) – Rhode Island’s two major pension funds have mostly tread water since lawmakers overhauled them in 2011, new data shows.
The shortfall in the pension funds for state employees and teachers stood at $4.55 billion as of June 30, compared with $4.4 billion in 2014 and $4.5 billion back in 2012, according to an annual report by the state’s outside actuary, Gabriel Roeder Smith & Co. of Texas.
The new valuation of the retirement system is the first since a legal settlement was approved earlier this year ending various union challenges over the 2011 pension law. Under the terms of the agreement, workers and retirees agreed to drop their lawsuit in exchange for some benefit increases.
The settlement has caused a dip in the state’s pension funding levels, which measure how much of the state’s long-term liability could be covered by its current assets. The pension funding level for state employees fell from 57.4% before the deal to 56.6% as of June 30, while the funding level for teachers fell from 59.6% to 58.8%.
General Treasurer Seth Magaziner, who oversees the pension system and backed the settlement, said the funding levels for 2014 would have been slightly lower if the deal had already been in place, making 2015 a positive year.
“The latest projections show that while the pension settlement approved earlier this year adds some cost to the system, the state pension system is continuing a steady trend of growth to a healthier funding level,” Magaziner told WPRI.com in a statement.
Before the 2011 pension overhaul, the shortfall in the two major pension funds stood at $6.8 billion and their funding levels both stood at 48% – so even with the settlement, the various changes that have now been locked in saved taxpayers billions of dollars.
Among former state employees in the system, the average retiree with a standard pension was a 73-year-old receiving an annual benefit of $31,568. Among former teachers, the average retiree with a standard pension was a 71-year-old receiving an annual benefit of $45,096. There were about 11,000 retirees in each group.
Rhode Island’s state spending on pensions has exploded since 2000, with the annual taxpayer contribution for state employees’ benefits jumping from 8% of payroll in 2000 to 25% in the latest valuation.
State and local taxpayers in Rhode Island must contribute $418 million to the pension system in the current fiscal year, according to the actuarial valuation. That amount is projected to keep rising in the coming years as the state continues to pay down the liability it built up over many decades of unfunded pension promises.
The future health of the pension system depends in large part on the performance of its investments. The State Retirement Board’s assumptions forecast that the pension fund will grow by an average of 7.5% a year; the actual average from 2005 to 2015 was 6%, according to the new valuation.
The Municipal Employees’ Retirement System (MERS), a state-run but locally funded pension plan for city and town workers, remains in much healthier shape than the state employees or teachers plans. MERS saw its combined shortfall tick up from $252 million in 2014 to $272 million in 2015 in the wake of the settlement, and its combined funding level stayed basically flat.
“The MERS system continues to perform well overall, with a majority of participating plans funded at 80% or higher, and an overall funded ratio of 83.8%,” Magaziner said.
The new valuation does not include estimates of the financial health of the state’s comparatively small pension plans for judges and state police officers. The shortfall in those funds stood at $25 million as of June 30, 2014, according to the most recent state audit.Ted Nesi (email@example.com) covers politics and the economy for WPRI.com. He hosts Executive Suite and writes The Saturday Morning Post. Follow him on Twitter: @tednesiAn earlier version of this story said the 2014 pension shortfall for state employees and teachers was $4.6 billion; however, that figure reflected the shortfall after the benefit increases contained in the 2015 legal settlement. The story has been revised to use the pre-settlement figure of $4.4 billion.