City’s ‘critical’ pension plan to get outside review
The city’s Fire and Police 1 pension plan, the one with an unfunded liability of $242 million and considered to be “critical status” by the state, will undergo a review by a nationally renowned organization.
“It’s free assistance from a neat group,” City Finance Director Ernest Zmyslinksi said Friday.
Last week, in response to the city’s request of Oct. 19, The Pew Charitable Trusts' Center on the States (Pew) and the Laura and John Arnold Foundation (LJAF) said they could start immediately providing the city with technical assistance.
Mayor Scott Avedisian is also enthusiastic about Pew’s involvement.
“As you know, we have had a number of people look at the plan to see if there are things that we can do to shore the plan up and reduce the unfunded liability,” he wrote in an email responding to questions about PEW and what he expects they will do.
“We have several possibilities that we are exploring, including outside financing of the plan. We hope that the experts from Pew can look at the possibilities and give guidance for the future,” he said
In compliance with the Rhode Island Retirement Security Act, the city filed its plan to address the pension plan on Friday. The deadline was Sunday.
Basically, said Zmyslinski, the city outlined the 40-year plan, which was initiated 18 years ago, to fund the pension. The city has not deviated from the plan, which requires the city to budget millions of dollars annually to pay police and fire retirees. The current budget calls for a $14 million contribution (this fiscal year) from the taxpayers.
The pension plan has long been closed. Only a handful of active firefighters and one police officer are enrolled in the plan. This means that, other than city contributions and investment returns, little is flowing into the plan. Unlike many municipal plans, Fire and Police 1 does not have an annual automatic cost of living adjustment (COLA). Benefit payments to retirees are linked to salaries of active members of both departments. If firefighters win a raise, retirees benefit by an equal percentage in their pensions.
The most recent actuarial study, showing a $242 million unfunded liability, does not take into account the fact that Fire and Police entered into contracts, starting July 1 of this year, that freeze their pay for three years. That agreement should substantially reduce the unfunded liability.
But the city has also been active in reducing assumptions about investment returns and mortality that will have the opposite effect and increase the unfunded liability. The administration voluntarily made those adjustments last year, when General Treasurer Gina Raimondo adjusted the assumptions for state plans.
But it appears there would be more to do.
In a letter signed by Michael Caudell-Feagan, deputy director of Pew Center on the States, and Josh B. McGee, vice president for public accountability initiatives for the Laura & John Arnold Foundation, the city is told this collaborative effort “requires your active participation and complete cooperation.” Further, the city is advised that MAEVA Municipal Solutions (MMS) and the actuaries of October Three will be working on the project.
“Working with them all will be a necessary condition for restructuring your pension funds in ‘critical status’ so that they become affordable and sustainable,” they wrote, “while still offering the compensation packages needed to recruit and retain a talented workforce.”
Chief of staff Mark Carruolo called Pew’s involvement a welcome set “of extra eyes.”
As for where the city is positioned, relative to other municipalities with pension plans in “critical status,” Carruolo ventured that the state “will get a more complete plan from us than any other city.” Given that the city has not calculated the impact of police and fire contracts, yet reduced investment projections to bring them in line with the state’s, Carruolo says the city has taken “an extremely conservative approach.”
Neither a spokesperson for the Department of Administration, which will review critical status plans, nor one for Pew could be reached for comment on Friday.