September 30, 2014
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Avedisian looks to address weak sister of city’s 4 pension plans

Three out of four ain’t bad.

That would be one way to look at the pension reports filed prior to the April 1 deadline to meet the requirements under the Rhode Island Retirement Security Act, the state pension reform bill approved last November by the General Assembly and signed into law by the governor.

Another way to look at it is that, with the exception of the closed Police and Fire Pension I Plan, Warwick pension plans are in far better shape than many other municipalities.

A third way to look at it is the position being taken by Mayor Scott Avedisian.

In an exchange of emails last week with the Beacon, Avedisian disclosed he and other city representatives met with representatives from the General Treasurer’s office last Tuesday and that they are working on plans to address the underfunded Police and Fire I plan. Yesterday, he expanded on those plans, saying one of the options he is considering is the purchase of life insurance for retirees with the city as the beneficiary, as is being done in Bristol.

According to the pension reports, that plan is 22.3 percent funded. Further, if the city were to meet the annual required contribution for a 30-year level payment amount, it would need to increase its projected payment from $14.8 million to $21.2 million in the next fiscal year. The $14.8 million is based on a 40-year level payment plan adopted 18 years ago, which Avedisian feels the city would be foolish to abandon, with 12 years to go.

Avedisian said he has enlisted “a retired judge and a prominent

attorney to look at the plan to see if there are other avenues available to assist in the funding mechanisms.” The mayor did not name those people he has contacted, but went on to say, “We are also looking at other scenarios that might in fact look at strengthening the overall pension fund.” He said he would ask them to do a cost analysis of purchasing life insurance.

Joy Fox, spokeswoman for General Treasurer Gina Raimondo, said the groups talked about possible ways to tackle pension problems.

“The mayor and his staff understand the complexities of their plans and were prepared with the results of their updated experience study and assumptions,” she said.

Avedisian said, “We discussed the four pension plans that we administer and brainstormed a number of options to shore up the one plan that is problematic.”

Fox went on to say, “The treasurer believes it is important to remember there is no one-size-fits-all solution for these locally-administered plans. Each has unique situations, varying widely in their design, funding status and membership. In light of this, she remains committed to working with municipal leaders as they develop comprehensive solutions to achieve retirement security for their employees.”

Early in the discussion of state pension reforms last summer, the city administration was proactive in adopting the more conservative investment return and mortality assumptions that have now been adopted by the state. This reduced the funded ratio of the pension plans as calculated by actuaries. Nonetheless, the city’s three other plans are all above the 60 percent funded threshold considered as critical.

The Police II plan is 86.5 percent; Fire II is 78 percent; and the Municipal Employees Retirement Plan is 71 percent funded.

“While the city of Warwick Municipal Retirement Plan [Warwick MERP] was not included in this analysis, we believe that the future experience of Warwick MERP, with regard to termination, disability, mortality, and compensation increases, will be similar to those expected in other municipal retirement systems in Rhode Island. Therefore, we believe these updated assumptions are consistent, reasonable, and more accurately portray the retirement system’s liability and cost,” wrote Joseph P. Newton, FSA, EA, MAAA, senior consultant with Gabrier Roeder Smith & Company, in his report to the city.


Comments
43 comments on this item

Just don't raise our taxes again!

He can't help raising your taxes. It's in his blood, you know he works for the unions and he also benefits from the incease going into his penision. Do you know people that tell you something staight to your face and telling you he'd never do that. But come to find out after they where for it all whole time. Well that is our Mayor! He has been us he been against the Airport !!! His been tell us Warwick is in fine shape!! He tells you the Pension plans but one is in fine shape too.!! He had to raise taxes because of the Great flood, He blames the Schools for taking for the Money. This Year he can't blame the snow, But maybe the tropical Strom or the easter bunny.. Just remember the Mayor doesn't know the meaning of lower taxes. He's friend with Chafee the Tax Man..

"Yesterday, (Mayor Avedisian) expanded on those plans, saying one of the options he is considering is the purchase of life insurance for retirees with the city as the beneficiary, as is being done in Bristol."

That's not what happens in Bristol. Here is the description of the Bristol benefit: "Employees hired after July 1, 1997 are offered $50,000 whole life insurance." The town does not buy life insurance on the lives of retirees. How did the mayor get this wrong? Did he check with Bristol town officials or look on the web for the information - as I did?

Does the mayor have any idea how much this insurance would cost? Who would get the sales commissions? Where would the money come from to buy the insurance? Here's a bigger question. What would happen if most of the retired fire fighters outlived their insurance policies? In that case the insurance premiums would have a significant negative impact on the pension fund.

Here's a bigger question. How did the municipal employees' pension fund come in at 71% funded when the disaster point is 70%. Does anybody believe that 71% number???

Schwanee - Numbers dont lie. Pension is in grest shape. STFU

Richard - you need to just go away mayor is doing a great job. Thats why he gets re elected every year.

SteveD: Scott Avedisian does not run for mayor every year... Check your facts. And give me a reason why I should go away. I agree that the mayor does a great balancing job. But, we need leadership not some kind of weird balancing and juggling act.

Typical Avedisian spin thanks to the Beacon. The pensions system in Warwick is in horrible shape and Scottie done nothing about it. He has been in office for 20 years and the pension have gotten worse.

How About Warwick's unfunded healthacare obligation? Over $250 million......what about the pending WSA bankruptcy? Great leadership Scottie.

Why is it the people who read this newspaper cannot give credit where its due. Avedisian does not cater to the Unions. Please explain how he does this, how he maintain a surplus every year, cater to the unions, while maintaining this under the same property tax cap as every other city and town in this state. All right I get it, you don't like the man, perhaps you may wish to live in Woonsocket or maybe Central Falls. Why don't the people who seem to know everything do a cost analysis on there house, that is what you pay for taxes on your house to a comparable house in another city and look at the taxes on that house. I cringe the day he leaves, there is no one with his leadership skills around.

Johnpella,

To be fully funded a pension plan has to be at least at 80%. Only one of the pensions meets that. And go ahead and compare our property tax rate to other cities and towns. We are in the top 25%. He raises our rates 4% every year. This is not fair or sustainable. Trust me Scotty's going soon, and when he does the whole house of cards will fall down, just as it has in Providence.

SteveD - when your pension check stop. Don't want to tell you I told you so but iIcan say we did let you know,Go to Warwick Website site and see for your self. If you want to debate keep it clean..

Johnpella,

You will cringe the day he leaves and you find out the real problem. When the next mayor takes over, He will have the same issues that the Providence Mayor has right now..

Schwanee - I have seen the numbers. Are you telling me that they are false, and everybody in the state that looked at them is also wrong. Explain - because I have seen all the numbers and they are doing well!!!!

SteveD: Do you really believe that the city workers' pension system is funded at 71%? Don't forget, if it were 70%, it would be declared a disaster. All it would take is a slight deviation from the presumed interest rate of 7.5% and you drop below the magical 71% funding level. Perhaps you could fill us all in on where the city should invest the pension assets to get a 7.5% return. I think we would all be interested in your insight on this.

How does a 71% of funding requirement meet the definition that the pensions "are doing well?" And the Fire 1 pension is a total disaster. It is not doing well.

Do you reallly believe they just wrote 71% down on a piece of paper and said Hey Gina were all set at 71%. WHy don't you quit complaining and accept the fact that they are doing a great job. I am not an investor Rich and by the way they return for the last couple of quarters was around 17% so I think they know how to invest. Here's where you lecture me on the past and blah blah blah. We just went through one of the worst economies in history. EVERYONE LOST MONEY. Get over it. Why don't you educate me on the facts seeing as you know everything. Maybe they should change the return rate to -5% and the mortality rate to 130.

SteveD: The deal is not a single pension bout all four put together. If the total is under 71% you have a problem. Warwick has a problem. Also, if the pension fund increased 17% in a quarter that means on an annual basis the increase would be 68%. And that would be on only about half the assets because the rest should be in fixed income. So, on an annual basis the equity yield would be about %140 percent gain. That is clearly in risky territory.

I don't get the mortality rate at 130 comment. Are you dealing in realities or simply typing up junk? This is similar to you lack of awareness that the mayor goes through an election every two years, not every year as you previously commented on.

Richard - Do you mind if I call you Dick. You commented about the city workers' pension being funded at 71%. You never mentioned combining them and dividing to come up with a percentage, NO ONE HAS. Im sure your an educated man, I said one quarter I didn't say a year so your 68% figure is pulled out of your rectum. Basic facts are you like to talk a big game and when it comes time to put up you get beat. Thats because no one believes you. I read all the crap you post and nothing is worth repeating because you are full of hot air. The numbers dont lie you do.

SteveD: The more gross you get with your comments the more disservice you do to the loyal city employees -- most of whom are honest citizens who are trying to keep going in these trying times. You are harming those who you are trying to help. I used to think you actually had points that were of some value. But, now I don't. You have lost the respect of many who read these blogs.

I spoke the truth and that is a disservice?

Some facts taken directly from city actuarial reports released to the public on Friday March 30, 2012:

The combined funding ratio of all pension plans in Warwick is 51.2%.

Factoring in OPEB liability (Other Post Employment Benefits, "Healthcare") the ratio slips to 37%.

Rate of return for city pension plans based on official city financial documents from Fiduciary Investment Advisors report:

Page 65 Police I & Fire I Pension plan: Since Inception Date 10/01/1997 rate of return 5.3%

Page 69 Police II Pension plan: Since inception date 10/01/1997 rate of return 5.7%

Page 73 Municipal Pension plan: Since Inception date 10/01/1997 rate of return 5.8%

Page 77 Fire II Pension plan: Since inception 07/01/2002 rate of return 6.0%

No city pension plan has been able to meet the new 7.5% assumed rate of return since inception according to report. In reality this means the plans funding ration are much less then being reported.

Total Actuarial accrued liability for both pension and OPEB =

$869,273,925

Read that number again. That's almost $1 billion in liabilities associated with city only, employee retirement benefit costs.

Stockson , Ca. is considering bankruptcy because they have unfunded pension obligations of $300 million and yet they have 300,000 residents. warwick has the same pension unfunded obligations but only 90,000 people to pay for Scottie's mismanagement......who will warwick's bankruptcy lawyer be?

Bankruptcy is not where the city wants to go.... Also Bob likes to throw out these crazy numbers. Yes they are large, that number is not correct. The whole Unfuded Liability is a CRAP term. Not everyone can retire tomorrow and walk away with a full 70% pension....

Steve D,

If the city is doing so well, there will be no need to raise taxes. What do you think is going to happen?

Steve D:

You hit the nail on the head with your comment that city retirees will not take home their entire 70% of pay for all future years the day they retire. They will -- and already do -- rely on the rest of us -- you and me and all the other taxpayers around here to pay them each month, month after month, their pensions so that they can pay their future taxes, buy food, get to the movies once and a while and buy things for their grandkids.

I am sure that you have taken steps to ensure that you will have enough funds for your own retirement. You probably have fire insurance, auto insurance, life insurance. If you heard that your insurance companies were not following the requirement for future reserves to pay you back it would not surprise me that you take steps with the regulators to bring the insurance companies to their tasks.

So, what is different about the city. Don't you think the city employees want their benefits manager to meet the statutory requirement for funding too? If the actuaries say the city is only 51.2% funded wouldn't you think that the city employees would want to ask why?

I really don't get why we don't see eye to eye on this actuarial finding.

Steve D......are you a firefighter? You certainly live in dream land.....the Mayor is already on youtube declaring Warwick will be another Central Falls....guess you didn't see it.....you'll probably say it's an imposter

Plain and simple the plans are in good shape not just my opinion but the opinion of the city officials and state officials. Trust me richard I believe in the smae points you sometimes make. But to sit there and cry the sky is falling is totally wrong. My question to you Richard is - If you have all the answers How do you make the plans in your mind fiscally sound? My point on the term UNFUNDED LIABILITY is a bad term. Break that down for me and explain how the city will need to fork over $300 million tomorrow. You cant because it will never happen. Everyone in the city that can retire is not going to. If the city were lying or drastically over estimating their returns dont you think Gina "The Great" would make he voice heard? I am not a Scottie fan either but he has done a great job.

SteveD, Answer my question. Are taxes going up again this year? Our taxes are up 40% since 2006. The city isn't in good shape. Were just a lot better off then some other Rhode Island cities.

Steve D: What state official has said the Warwick plans are in "great shape." That's the first I've heard of that. And, the city officials don't overestimate the returns on the pension plans.

Here is an example of the real problem: The city employees' plan is 71% funded against where it should be. The presumed interest rate is 7.5%. That rate is based on the proposition that the plan has 100% of what it should have set aside already in the clover. But it doesn't. According to the mayor it has only 71% of the required amount set aside. Now to catch up the yield can't be 7.5% but a much higher number -- or the city needs to put in millions per year in additional contributions to keep the 7.5% a good working projection (which it isn't by the way).

Where are those millions per year going to come from? We are already increasing taxes as much as we can. So, city services must go. And when they go, younger employees get laid off. Their contributions are no longer there to float the older employees. So, each year the situation gets worse. The pension requires a higher per year contribution even though there are fewer workers contributing. More people get laid off to carry the pension that has an older and older employee population. All of a sudden the older employees see the handwriting on the wall. They retire.

We all know what happens next. It is called the Central Falls syndrome.

Still waiting for your solution Richard?

SteveD:

Here is my solution:

1. Admit there is a problem with city pensions.

2. Review all disability pensions with true independent physicians for retirees under Social Security retirement age. Make sure disabilities are still as severe as they were when awarded.

3. Remove elected officials from pensions

4. Reorganize pensions to coordinate with Social Security. Make the combined city contribution to the city pensions and Social Security add up to a reasonable basic award. Add new employee contributions as a 401K-style extra benefit above the basic award.

This should solve the problem

Richard, Last year the social security COLA was 3.6% or how about in 05 when it was 5.8%. Or in the 80's when it was 11 and 12 %. I think its a great Idea t tie it to the CPI or SS award. You will be the first in line to complain when they hand out a 6 percent cola (yes i know some employees got 6 %, its a very small amount a long time ago) because social security got one also. Yes 09 and 10 there was none, but if you average them out its well over 3 percent. I believe the new hires are going into a 401 k style plan anyway nit your idea. They already admitted some of the plans have problems, not your idea. Doesn't sound like youve come up with much!!!!!

SteveD: Integrating with Social Security means you carve Social Security out of the benefit. The total benefit is X percent of the last so many years of salary. Social Security is a part of that X and the employer contributions to the X as well. I have not heard that from anybody. Also, what about reviewing the disabilities?

How do you carve SS out of the benefit? SS is something many of us have been paying into for years from other jobs. That has nothing to do with pensions. They are totally seperate benefits. People with disabilities whould be brough in on an annual basis and reviewed. I have no problem with that. There are certain disabilies that will never get better (ie heart attacks, strokes, dismemberment). Back injuries should be annually reviewed. I don't see any merit to your claims.

SteveD: The nature of a defined benefit plan is to supplement Social Security so that the combined total of Social Security and the pension gets the employee to the defined benefit -- which is a percent of salary. If you disconnect the two of them then the employee gets his/her Social Security plus the defined benefit. This might take him/her over the top of the salary at retirement. That's OK for the employee contribution but not OK for the employer contribution which should be a percent of the salary including the Social Security program. IRS changed its rules about all of this a few years ago which caused most private sector plans to cancel their defined benefit plans. The state is taking a hybrid approach to this and the city should follow suit.

It is not OK for the city unions to keep their membership and the taxpayers in the dark over this issue under the illusion that a problem does not exist.

Not every city or department in the city contributes to SS. How to tell some people we are taking from your pension because you get SS when others dont get Social security. Seems to me benefits would be different and not very uniform.

I would hope that everyone within a given pension plan gets the same Social Security treatment now. If not, we have a very big problem.

Apparently you do not know everything richard. Every city has the right to contribute to SS or not. Not every worker has SS benefits.

SteveD: That may be true theoretically, cities and towns may choose not to participate in Social Security - but the mayor says all city employees other than Fire and Police do contribute to Social Security. I would hope that that is the real situation. Is there something that the mayor has not disclosed?

I don't understand your question?

Question is very simple: Does every current city employee who is in a pension plan and is not in the fire or police plans participate in Social Security?

I don't know that answer im sure its public record.

SteveD: On 4/11/12 at 04:37 PM, SteveD wrote:

"Apparently you do not know everything richard. Every city has the right to contribute to SS or not. Not every worker has SS benefits."

Now you are saying you don't know the answer about whether Warwick actually contributes to Social Security. And you don't actually understand the practice of integrating pensions with Social Security. This exchange has been going around and around for days and has ended up nowhere. For us to fix the pension problems in Warwick we need to understand exactly how they work.

Richard quit the dog and pont show. You asked me a question "Does every current city employee who is in a pension plan and is not in the fire or police plans participate in Social Security?" I am sick of you putting words in my mouth. I stated cities have the righ to choose. I can;t tell you weather every public worker contributes because some do and some don't what part of that don't you get. As far as integrating ss and pensions THEY ARE TWO SEPARATE RETIREMENT OPTIONS. Some people have both some people have none and some people have 1 ot the other. WHen you sign on for a job and they tell you after 30 years you will get a percenatge of you salary in retirement. No where does it say anything about what you make for SS. I am sick of the falso BS that come out of your mouth. You have ideas that arent practical. City workers are doing their fair share and will continue to do so. The pensions are doing fine..... I am done with your conversation.

The taxpayers pay half of the Social Security and this payment should be programmed into the total pension award. If you want to attribute that thought to yourself - by my guest. It should be obvious to all who pays for Social Security and who does not because we the taxpayers are paying for half of the Social Security. Are you suggesting that there are employees who can choose not to participate in Social Security when they can do so? If so, they should get a lower pension award.

Obviously this is a very sensitive area for you. But, what should be more obvious to all is that the city's pension programs have serious flaws, that the funding levels are far too low to avoid a "bubble" when a whole bunch of employees retire at once. That creates a downward spiral similar to that encountered in Central Falls and now Providence, Woonsocket, Johnston, West Warwick, East Providence and of course Cranston. The city workers need to recognize that a 70% funded pension is not at all cool and that it is a real problem.

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