By DANIEL KITTREDGE The future of Providence's troubled pension system has drawn attention across Rhode Island in recent weeks, but a recent report from the general treasurer's office and a subsequent news story have sparked new debate over Cranston's
The future of Providence’s troubled pension system has drawn attention across Rhode Island in recent weeks, but a recent report from the general treasurer’s office and a subsequent news story have sparked new debate over Cranston’s obligations to retirees, too.
In its fourth annual report on the status of Rhode Island’s municipal pension plans – billed as a “report card” – the office of General Treasurer Seth Magaziner highlighted the projected investment return Cranston uses to calculate the status of its closed pension plan for police and fire personnel.
The report covers 34 municipal pension plans that operate outside the state’s Municipal Employees Retirement System, or MERS. Twenty of the plans, according to the treasurer’s office, are in “critical status.” That designation is based on cities and towns having less than 60 percent of the assets needed to meet their full projected pension liability.
The Cranston police and fire pension plan, which was closed in 1995, had a funded status of 23 percent as of June 30, 2020, the treasurer’s report indicates.
The plan’s total liabilities for 11 active employees and 419 retirees totaled roughly $296.74 million, the treasurer’s office found, while its “fiduciary net position,” or available assets, stood at just more than $68 million.
Despite the “critical” label, there are positive signs. The funded status cited in the treasurer’s report represents a 2.4 percent increase over the past five years. And the city has met its full actuarially determined contribution to the plan in each of the last four years, which is the period covered by the report.
Where Cranston stands out, according to the treasurer’s report, is its assumed rate of return for the pension plan’s investments.
“The 7.9% investment return assumption used by the Cranston Police and Fireman pension plan,” the report reads, “is the highest of any public pension plan in the state.”
In contrast, the report states, “Twenty-one plans have assumed rates of return at or below 7.0%, indicating that these plans have a reasonable investment return assumption and are less likely to face future unexpected shortfalls.”
Among the recommendations included in the report is the following: “In managing public pensions, municipalities should develop and follow strong funding plans that are based on realistic actuarial assumptions. Benefit levels should be fair and sustainable. Investment strategies should balance the need to achieve strong returns with protecting against risk. Above all, municipalities should be transparent about the condition of their pension plans and the way in which they are managed.”
Cranston is also among six communities – including Pawtucket, Providence, Narragansett, West Warwick and Woonsocket – that have annual actuarially determined pension contributions that exceed 10 percent of the overall tax levy, according to the report. That, the document states, suggests “that local pension liabilities are, or have the potential for, crowding out other important budget priorities.”
In a recent report for WPRI, reporter Ted Nesi highlighted the findings of the treasurer’s report and its comments about Cranston specifically.
That led to a statement from the Cranston Democratic City Committee and its chair, 2020 mayoral candidate Maria Bucci, accusing the administration of Republican Mayor Ken Hopkins of “continued fiscal irresponsibility.” The statement asserts the 7.9 percent investment return projection is “unrealistic and irresponsible.”
“The City has an obligation to its taxpayers to protect our money and put our interests first,” Bucci said in the statement. “We also have an obligation to our hardworking public safety personnel to ensure that the pension system is responsibly managed and that the benefits they have been promised through collective bargaining are adequately provided for. While our pension being in critical status is not new information, I’m troubled with the news about the lack of progress and the continued reliance on unrealistic investment returns to depress our annual investments. I am especially fearful that the irresponsible budget that was just passed makes it so likely that we will be seeing significant tax increases in the coming years to fund the unsustainable spending of the Hopkins administration.”
The use of the 7.9 percent rate of return, however, precedes the Hopkins administration. A check of recent pension plan reports shows that figure used for the investment return rate going back to fiscal year 2015, during the tenure of former mayor Allan Fung. For multiple years preceding that, also under the Fung administration, the projected rate stood at 7.5 percent.
Anthony Moretti, Hopkins’s chief of staff, rejected the accusations from Bucci and the Democratic committee as “ridiculous.” He noted that since Hopkins just took office in January, an actuarial report on the standing of the police and fire pension plan has not yet been completed.
“It’s very unfair to be critical of the mayor under those circumstances,” he said.
The Hopkins administration also provided a statement from Finance Director Robert Strom defending the projected rate of return.
The statement from Strom reads: “Under the City’s previous investment management firm, Janney Montgomery Scott, the City saw an average return rate of 7.8%, from June 15, 2009 through September 20, 2020. This return rate was maintained for 11 years. In early September 2020, the City’s Investment Committee voted in favor of transitioning its pension fund management from Janney Montgomery Scott to Canton Hathaway. In the remainder of FY2020 under Canton Hathaway, the City saw a return rate of 7.2%, from September 1 through December 31. From January 1, 2021, through May 31, 2021, the City has seen a return rate of 7.6%.”
Strom’s statement continues: “It is important to note that, for the past decade, the City has consistently made its annual Actuarially Required Contributions (ARC) to its local pension fund. Over the past twenty five years, the funding level has improved from approximately 7% to 23%. Annually, the pension fund actuary re-evaluates the assumed rate of return and the City will comply with such expert advice. Mayor Hopkins has told me that he is committed to continuing to meet its actuarially determined pension funding obligations and the City’s pensioners should not be alarmed by propaganda statements from political adversaries. The City’s pension fund is in better shape now than it has been in decades and it will continue to improve. Distracting political banter from a few disengaged nay-sayers should not be concerning to our taxpayers.”
The city’s recently adopted budget for the fiscal year that begins July 1 includes a full city contribution of $21.5 million to the police and fire pension plan.
Reached Monday, Fung also defended the 7.9 percent figure used in the investment return projections. He said that figure is rooted in the findings of an "experience study," which is completed every three years as a requirement of state law and assesses the assumptions on which the pension plan operates.
“I didn’t just choose that assumption out of the air,” he said.
The police and fire pension was a major focus for Fung as mayor. During his administration, the city adopted pension reforms – and, subsequently, reached a settlement with the police and fire unions – that provided for temporary cost-of-living adjustment, or COLA, freezes for retirees in an effort to shore up the plan’s fiscal standing. Subsequent court challenges by a group of retirees were unsuccessful.
Fung’s administration also saw moves to have newly hired workers enrolled in 401(k) style retirement plans rather than traditional pensions.
In broader terms, the report from the treasurer’s office shows the state’s independent municipal pension plans have $2.8 billion in combined unfunded liabilities.
“While Rhode Island has made progress in improving the health and transparency around local pension plans, more work remains to make our locally administered pension plans sustainable,” the report reads.