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July 9, 2007

Auditor general: Reconsider locally-run pension plans

Pension plans for municipal employees that are run by some cities and towns are in risky — even perilous — condition, and the state’s auditor general recommends doing away with them in a report released today.

Of 37 pension plans run by municipalities, 21 are at risk because they do not have enough money to begin with, because the city or town is not putting enough in each year or both, according to the report by Auditor General Ernest A. Almonte.

“Locally-administered plans can be problematic and their continued existence should be strongly reconsidered,” Almonte’s report says.

The 37 plans are run by 25 different cities and towns. Several of those communities have more than one plan, such as Coventry, which has separate plans for police employees, school employees and municipal employees. Additionally, all teachers are part of the state retirement system, into which each city and town must pay a contribution. Municipalities that do not have their own plans participate in the state-run Municipal Employees’ Retirement System.

Almonte suggested that communities with their own pension systems consider joining the state-run plan. Even well run local plans would benefit, Almonte said, by pooling their resources. That would reduce administrative costs of running the plans and open up investment opportunities that are only available to plans with larger pools of money.

The state plan also has the advantage that, under state law, communities are required to contribute enough money each year to cover the costs of the plan. If they do not, the amount that they are short can be deducted from their state aid. While this may tighten already stretched municipal budgets, it avoids huge expenses down the road that can result from pension plans being underfunded.

Almonte grouped the at-risk pension plans into three risk categories. Category 1 is for plans that have significantly less money than they should, and the city or town is contributing significantly less than it should each year. Category 2 is for plans that have significantly less money than they should, but the city or town is contributing about what it should each year, which will allow it to eventually catch up. Category 3 is for plans that have about as much money as they should, but the city or town is not putting in enough each year and its contributions are decreasing.

Five communities have one or more plans that fall into Category 1: Central Falls, Coventry, Narragansett, Pawtucket and West Warwick.

All three local plans in Coventry were rated in Category 1.

Extra: For details, read the auditor general's report here.

-- Journal staff writer Paul Edward Parker

Posted by Andrea Panciera  at 6:01 PM | Permalink

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