Municipal finance officers and the administrators of city and town pension plans got a primer Tuesday on how to go about assessing those plans with the thought of reforming them, plus the observation of a renowned outsider who said for a solution to work everyone has to bite the bullet.The occasion was a pension workshop staged by General Treasurer Gina Raimondo to help municipalities meet the April 1 deadline for assessments, or experience study as it is termed, of their plans. The workshop was held at the Knight Campus of CCRI. And the outsider was Richard Ravitch, the former lieutenant governor of New York whose account of the near default of New York City in 1975 offered an insight on how financial institutions, unions and elected officials pulled together to avert disaster.
Ravitch also made it clear that now is not like then. He said the scope of pension funding problems at state and municipal levels across the country are so dire that starting over may be the only alternative. Also, he said the parties aren’t as willing to work together, singling out Congress whose members, he said, have disconnected themselves from state issues.
“We’re very much at square one,” he said, “and that’s why what you’re doing here is so incredibly important to the country.”
Looking at situations across the country, Ravitch said there is no way cities can balance budgets without cutting essential services.
“It’s a question of which poison you want to take,” he said. “And if choices between reducing services and funding pensions are put off, such as using pension assets for collateral to borrow funds, then we’re sinking the next generation.”
Such recognition of how the state has identified the need for pension reform and taken the lead brought smiles to the faces of the more than 60 people in the room. It didn’t distract, however, from Raimondo’s message that the state not only is looking for answers for the municipal plans but is also there to assist.
“Everybody wants to rush to an answer,” she said in opening remarks. She advised to dig in and see how big the problem is; get parties to agree on the issues; draft a plan and then develop the political will to implement it.
Raimondo acknowledged there are likely to be bumps, especially when contractual agreements are changed.
“It’s not just the answer, it’s the process of getting to the answer that is important,” she said.
How badly off some of the local pension plans are varies depending on whether municipalities have kept pace with funding and plan benefits. It was apparent, unless those asked were hesitant to raise their hands, that many of the pension plans documents have not been reviewed in years and that the plans may not comply with Internal Revenue Service regulations.
“This is not just about pension plans,” said Mark Dingley, general counsel for the treasurer, “it’s about you.”
Dingley said that changes in the plans present a high risk of being challenged in court. His advice was that plan administrators know their documents and avoid conflicts of interest such as being a council member as well as on the pension board. In such instances they could be faced with choosing what they believe best for the taxpayers versus what could be best for plan members.
Joseph Newton of Gabriel Roeder Smith & Company, who is an actuary, offered predictions of the future are very difficult, suggesting that plan assumptions err on the side of caution and that sustainability is critically important. He favored garnering assumptions such as investment returns and morbidity comes from large plans, as they are more likely to be accurate. On this point, Raimondo favored assumptions being used for MERS, the state operated pension plan.
In developing their experience study, Raimondo recommended that municipal pension plan administrators piggyback on the assumptions used by MERS and tweak them to fit their plans. Under the state pension reform act approved late last year, the state will pay half of the cost of the experience studies that are due April 1.