New assumptions contributed to improved outlook for pension plans

John Howell
Posted 3/19/15

Not all good news is warmly received.

That was the case Monday night, when Joseph Newton of Gabriel Roeder Smith and Company (GRS), the city’s actuary, reported that the unfunded liability of …

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New assumptions contributed to improved outlook for pension plans

Posted

Not all good news is warmly received.

That was the case Monday night, when Joseph Newton of Gabriel Roeder Smith and Company (GRS), the city’s actuary, reported that the unfunded liability of city pension plans have been reduced while the combined portfolios of the four plans are worth more than $402 million.

To arrive at the numbers, GRS looked at the market performance of each of the plans as well as recalculated projected payments based on new assumptions. What troubled some councilmen is that the assumptions used in the Municipal plan, which is overseen by the city’s Retirement Board, had not been approved by the board.

Ward 4 Councilman Joseph Solomon said the report is akin to “putting the cart before the horse.”

“I want to make sure that we meet the obligations of a lot of people. We promised to make good on those obligations,” he said.

Newton said the assumption that salaries would increase by 4 percent per year was reduced to 3.5 percent per year. This has two effects on the pension plan: It reduces the level of current contributions since pension payments are based on a percentage of salaries; and it reduces eventual pension payments.

The fact that there has been no municipal salary increases for the past three years has altered the unfunded liability of the plans and, most dramatically, in the now closed Police and Fire I plan. That plan was projected to have an unfunded liability of $252 million as of July 1, 2014. But, because of the strong market performance and no increase in wages, the actual unfunded amount as of last July was $237 million. Based on the new assumptions, the unfunded liability drops even further to $211 million.

The changes further resulted in the elimination of projected spikes that would have pushed the current city contribution of about $15 million a year to more than $31 million by 2036. Now the projection is for a gradual increase to about $27 million by 2036, the last year of the 40-year amortization schedule the city started funding in 1995.

Ward 9 Councilman Steve Merolla questioned why the Retirement Board had not voted on the new assumptions.

Acting Chief of Staff William DePasquale said the board had been scheduled to consider the matter on March 13 but because the meeting was not properly posted 48 hours in advance, it would be rescheduled.

While the council learned late last week that the actuary would be attending Monday’s meeting, Merolla said the public was not privy to the information the council received.

“What we know behind closed doors, the public doesn’t know is going to be presented,” he said.

Asked about the change in assumptions the following day, City Finance Director Ernest Zmyslinski explained the city benefited from work Newton did for the Employees Retirement System of Rhode Island that included a review of the economic and demographic experience of the Rhode Island Municipal Employees Retirement System. At no cost to the city, the assumptions reached for the state were applied to the city plans.

While the Retirement Board has yet to vote on the changes, they have been applied to the Police and Fire I plan and the Police II and Fire II plans. Zmyslinski is the fiduciary for Police and Fire I and took that action. City Treasurer David Olsen is the fiduciary for the other two plans and likewise applied the new assumptions.

“We have done that before, so we followed the same process done before. There’s never been a question about that,” said Zmyslinski.

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  • .

    LIES

    Saturday, March 21, 2015 Report this

  • StaciaClueless

    Hey stacia aka samuel, we all know it's you. You will NEVER BE a political leader in this city. Shut the F*** UP already!

    Friday, March 27, 2015 Report this