Rhode Island Pension Plans Total $2.4 Billion Shortfall

More than one-third of Rhode Island’s 34 locally administered pension plans are in critical-funded status with a combined shortfall of more than $2.4 billion, according to a report from Rhode Island’s Office of the General Treasurer.

“The condition of municipal pension plans is of great importance to the public employees who rely on pensions for retirement security, and to the taxpayers who fund pension systems,” Rhode Island state Treasurer Seth Magaziner said in a release, adding that “many municipal pension plans face significant challenges.”

The report details key information on the status and trends of each of the state’s 34 locally administered pension plans, and includes individual report cards on the health and outlook of each plan. The report cards outline how the various plans performed across a range of key metrics in order to provide an overall sense of the health and outlook for each pension system.

The metrics used for the report cards include funded status ratio, funded status ratio trend; consistency of meeting annual required contributions; amortization period for current unfunded liability; negative amortization; investment return assumption; payroll growth assumption; net cash flow; and active to retiree ratio.

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In the 48-page report, the treasurer’s office found that more than one-third of Rhode Island’s local pension systems are less than 60% funded, and are therefore considered to be in critical status. It also found that the funded statuses for 13 plans have decreased during the four years ending in fiscal year 2016, and that “many plans have investment return and payroll growth assumptions that may not be realistic.”

Additionally, some communities have not consistently made the full actuarially required contributions to their pension plans over the past four years, and “in more than a few cases,” the share of the municipal annual required contribution payment to a community’s total tax levy is as high as 10% to 20%. The report said this suggests that the liabilities of these local pension systems are potentially crowding out other necessary public investments.

“While Rhode Island has made progress in improving the visibility and transparency around local pension plans, more work remains to make our locally administered pension plans sustainable,” said the report. “In some communities, the condition of municipal pension plans has reached such a critical state that the outlook for those systems is uncertain in the absence of corrective action.”

Despite the gloomy report, there were a few positive trends. The treasurer’s office found that the funded status for 17 plans have increased during the four years ending in fiscal year 2016, and that most municipalities met or exceeded their annual required contribution payments over the past four years. It also found that 12 plans have assumed rates of return at or below 7.0%, which it said indicates that they have a strong funding policy, and are less likely to face future unexpected shortfalls than plans with higher investment return assumptions.

Tags: Pension, Rhode Island, Rhode Island Office of the General Treasurer, Seth Magaziner

UK pension watchdog The Pensions Regulator (TPR) said it is taking a “clearer, quicker, and tougher approach” to improving standards in the pensions sector.

“The pensions landscape has been changing significantly,” TPR Chairman Mark Boyle said in a release. “In the coming year, you can expect to see us being more vocal about our expectations of those we regulate and intervening quickly and decisively through our wide-ranging regulatory activity and enforcement powers.”

Outlining the initiative is TPR’s newly released corporate plan for 2018 to 2021, in which the regulator summarizes how it will focus on key areas of activity, including improving standards of trusteeship and stewardship, authorizing master trust plans, and ensuring employers meet their automatic enrollment duties.

“We continue to see changes in the wider pensions landscape that impact our organization and the industry, and create new challenges,” said the report, citing continued uncertainty in the macro economy, and a significant shift of savings into defined contribution plans. “The way we work will undoubtedly need to evolve further to reflect these and other ongoing developments in the sector.”

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The report comes less than a week after TPR announced plans to crack down on employers who fail to pay pension-related fines by using high court enforcement officers to seize assets of employers who shirk their workplace pension obligations.

TPR said it will spend £4.3 million ($5.8 million) more in 2018-2019 than in 2017-2018 to go after employers who are not fulfilling their pension duties, and to launch a new anti-scams campaign to help prevent pensioners from being ripped off. TPR also plans to increase its staff by 12% during the year to handle the expected increase in workload.

The corporate plan “highlights our wide regulatory remit including ensuring employers meet their workplace pension duties,” TPR Chief Executive Lesley Titcomb said in a release.

Included among the TPR’s top priorities for the next three years are promoting good trusteeship through improving governance and administration, ensuring employers meet their ongoing automatic enrollment duties, and preparing for the impact of Brexit.

“We want to see improved standards of governance across the whole pensions landscape—no matter what type or size,” said the report. “If schemes fail to meet the basic duties, we will take action. Where schemes are unable to meet the standards of governance we expect, we will encourage them to explore consolidation into an alternative arrangement that provides good value for their members.”

Tags: Pension, The Pensions Regulator, UK