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Questions of city, town pension plans reveal lack of oversight
John Hazen White Jr.

The town of Coventry provides a useful example of what’s been wrong with independent, locally funded (or rather underfunded) pension plans across the state for some time now, and why these 36 plans need to be placed in the sunshine and closely examined, as a necessary first action to begin reforming them. Coventry’s pension problems demonstrate that even non-urban communities in our state have not managed or overseen their independent plans properly; in Coventry’s case, town officials have just revealed that they don’t even know the true nature of their teachers retirement plan.

Coventry has a total unfunded pension liability of $62 million currently. The town maintains three funds for retirees: municipal worker, police and teacher funds. Not surprisingly, all three are critically underfunded (that is, funded below 60 percent), with the police pension plan being in the worst shape, funded at less than 20 percent. In the case of the fund for its public school teachers (funded at 37 percent), a dispute has arisen over its very nature: is it a 401k defined contribution plan or a traditional defined benefit plan? Because the teachers plan is underfunded, the town’s taxpayers contribute $700,000 to the fund each year, but town officials thought the fund was a 401k-type plan and that the town didn’t pay out pension benefits upon retirement. In fact, it does pay benefits to over 300 retirees, which would seem to make it a defined benefit plan.

It took the state’s Auditor General office, in reviewing the language in Coventry financial reports, to ask the question as to just what type of plan it is, because it is referred to, variously, as both defined and contribution. And not only in town financial reports either: in the past, different town officials at various times have referred to the teachers plan as a 401k plan and as a pension plan. No one seems to know for sure what it was first designated as, but already accusations are being made that current town officials want to assign the plan to the 401k category so they won’t have to deal with an additional unfunded liability of $24 million, raising the town’s total unfunded liability from $62 million to $86 million! How this will get resolved is anyone’s guess.

In Coventry, it’s not only what town officials don’t know that is pushing their pension problems to the wall, it’s also what they’re doing purposely to make things worse for town taxpayers. As state Senator Nicholas Kettle, a Republican who represents Coventry (along with Scituate and Foster), pointed out recently, the town council actually voted to add a COLA for retired police officers, adding millions in taxpayer liability. And this new burden was added on to a retirement fund that is funded at less than 20 percent and could go belly up in less than a decade.

Coventry is not alone in mismanaging its pension funds. Last year we saw West Warwick town officials redirect a pension fund holding into what their independent pension advisors termed a risky investment choice. Town council members disagreed with the experts. And in Johnston, Mayor Polisena and his town council have wrestled with recently discovered special police 401k accounts that the town has been paying into for years and for which the paper trail of accountability is pretty thin. Now the retired police officers vested in that 401k want their money.

This goes to show that city and town councils, town managers, and mayors have had a hard time knowing just what their fund obligations are. For years, a number of Rhode Island cities and towns have not met their annual contribution obligations, and worse, they haven’t sought the information that would tell them what the consequences would be for not doing so. The full details and obligations of many of these plans have been a mystery to elected officials, who did not really want to know them in the first place. Most, if not all, of the 36 independent plans are still sticking to inflated projected investment return rates that no one has seen since 2007.

These examples call for policing action at the state level to rein these plans in, restructure them and include them under the umbrella of the state-run MERS (Municipal Employees Retirement System) plan, which was included in last year’s pension reform legislation. As a first step, the General Assembly needs to pass enabling legislation to allow individual cities and towns, especially the ones with pension funds in the worst shape, to suspend COLA payments to retirees for a period of time, as they best see fit. Otherwise, these municipalities will only sink lower, suffer bond rating depreciations and end up calling on the state for emergency aid to meet payrolls.


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