Aug 12 Last year, Rhode Island enacted what
experts said was the most far-reaching, sophisticated public
pension reform in the country to date, becoming a model for
other states and cities seeking to reshape their own ballooning
Yet the smallest state in the United States can't say it has
won the fight: the reform didn't apply to dozens of independent
local pension plans, many of which are sorely underfunded and
are stuck fending mostly for themselves.
Whether towns have acted urgently on pension reform,
however, is another matter.
At a heated town council meeting in West Warwick in June,
the biggest item on the agenda was a long-running squabble with
the school board about whether to hand over a few million
dollars to spare cuts in sports and music programs.
Sean Henseler, a parent and coach, was trying to get the
message out that the real demon on the fiscal horizon was the
town's nearly $235 million of unfunded liabilities for pension
and other retirement benefits.
"That's the iceberg they've already hit. The Titanic is
going down," Henseler said after the meeting. "These guys are
paying lawyers to rearrange the deck chairs."
Debate about public pensions is playing out across the
United States as state and local governments - many of which
already are struggling under bare-bones budgets in the
post-recession era - face retirement systems that are
increasingly burdensome or even unsustainable.
The overhauls, which could reshape municipal governments for
years to come, are fractured in a nation with thousands of funds
and a jumble of different laws at play.
Rhode Island is not the only state that has a raft of
independent local pension plans.
Pennsylvania, for example, has about 3,200 totally
independent local pension plans, a quarter of all public pension
plans in the country.
"These smaller local plans tend to be less efficient and
cost more and tend to have less oversight than the larger
statewide plans," said Keith Brainard, research director for the
National Association of State Retirement Administrators.
"And when you've got individual small employers trying to
navigate investment markets and taking on all of the actuarial
risk on their own, they're likely to experience higher costs,
lower returns and higher volatility," he said.
Reform in Rhode Island, which took effect July 1, suspended
cost-of-living adjustments, raised the retirement age, and moved
state employees onto a hybrid pension plan of defined benefits
and mandatory defined contributions.
The state has four main pension funds covering about 66,000
teachers, judges, police and other state workers.
RHODE ISLAND LOCAL PENSIONS UNDER THE GUN
Rhode Island also has 36 separate local pension plans
administered by 24 municipalities for firefighters, police and
city employees. More than a dozen were funded at less than 34
percent in fiscal 2010.
Last September, the state's auditor general, Dennis Hoyle,
reported that locally administered pension plans were
collectively $2.1 billion short in fiscal year 2010, the most
current data available for all the plans.
That amounts to a liability of $144,000 for each of the
14,600 members of the pension plan, according to the U.S. Census
The average funded ratio of local plans was 40.3 percent.
Funding for other locally administered post-employment benefits,
mostly for healthcare, was an additional $3.5 billion short of
Fixing the problem may be tough going for cities and towns,
which have suffered cuts in state aid and lowered revenue.
In nine towns, pensions and other retirement benefit
obligations - if paid in full - would have consumed at least 25
percent of their property tax levy in fiscal 2010. In
Woonsocket, the liabilities would have eaten up 61 percent.
State budget commissions are already overseeing finances of
Woonsocket and East Providence. West Warwick is one of three
other communities that have qualified but have yet to ask for a
budget commission. Central Falls went bankrupt last year - in
large part because of unmanageable bills for its nearly
insolvent pension plans.
"This is a crisis that's coming," Governor Lincoln Chafee
told Reuters recently. "There's going to be state intervention."
The changes from last year's state pension reform - which
labor unions are challenging in a lawsuit - did provide some
help for towns and cities, since they pay into the state pension
fund for teachers.
State Treasurer Gina Raimondo, a former venture capitalist
who took office in January 2011, said the reform could save
Rhode Island's cities and towns about $100 million in this
fiscal year and $1 billion over the next 20 years.
"If we hadn't had the reform, the bill to the taxpayer
beginning fiscal year 2013 would have been almost double,"
Raimondo told Reuters.
SOME CITIES TAKE A CRACK AT REFORM
Facing the possibility it could run out of money, Providence,
the state's biggest city and the capital, enacted pension
reforms that freeze cost-of-living increases for 10 years.
West Warwick is among cities that are just beginning to
address the problem of underfunded pensions.
"The problems go back 10 years. The current town council is
the first in some time that's actually tried to make
contributions," said Zak Asatrian, West Warwick's pension board
For nine of the past 13 years, the town of about 29,0000
paid less than 50 percent of what it owed, according to data
presented by state officials at a May public hearing. If nothing
changes, the fund will run dry by fiscal year 2017, they said.
West Warwick is making efforts to cut costs. It has
privatized trash collection and is bargaining with unions for
But spending plans die hard. A week after the raucous public
meeting, attended by nearly a thousand people, town council
members restored about $4 million it planned to cut from the
The city will also pay $5 million toward its pension plan
in fiscal year 2013 - five times more than last year, but still
just about half of the required contribution.
"We could level this thing off and stop the bleeding in
2013, but we have a long way to go," he said.