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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.


Comments
26 comments on this item

Private eye,s are watching you. With all of the fezzy numbers i guess. thank-you

Why did it take so long to get a review? Avedisian has done nothing to shore up this pension plan for years. Scottie don't tell us you weren't prodded by concern taxpayers because that would be a lie.

Good rate of return the last for years on the pension plan Scottie....when are you going to admit the taxpayers will have to contribute more to police and fire 1. Why haven't you Scottie frozen increased benefits years ago. I forgot that would require leadership....something Scottie doesn't have.

What about our unfunded healthcare plans? Enlighten us Scottie with your solution. Scottie is an empty suit.

Hmmm, I think I remember this guy named Bob Cushman who has been squawking about this problem for the last 4 years. But he wasnt taken seriously because after all, what would a guy with a masters degree in finance know about a balance sheet? He just wanted to mud sling against the mayor. Right. And the writer of this article removed him from his column because he was "attacking the administration on pension problems". Its a shame that Scottie boy didnt embrace Mr. Cushman and examine his analysis of the impending problem that the writer of this article, has now, 3 years later, so elequently expressed. It must just be a coincidence that this information was released AFTER the election. And, as a side bar, for the union boys, any gains that you had in your pension plan this entire year, were wiped out in the 2 days after the election. He told you so but you heckled him. Guess who is laughing now?? If you people really wanted to have an allie to protect your retirement, you would demand that Mr. Cushman be on an oversight board designed to protect your future, as he would do just that, but you still have not realized it yet. Confusious say, TAKE ADVANTAGE OF YOUR COMMUNITEE RESOURCES.

Last I checked Rob, they've been quite open about this plan being well unfunded. There is no new information. Move to Florida and stop being a whiney little #####... Yes we are all broke now because Obama won... I love you Romney losers continuing to cry....

"Any gains this entire year were wiped out in the 2 days after the election" You obviously do not know how the stock market works making such a statement.

I still laugh at Mr. Cushman.

Wether or not you believe the mayor or Mr. Cushman you should be excited about an outside group auditing the critical pension fund. But that doesn't change the fact that our taxes are going to continue to increase every year at an unsustainable rate. The 2.5% increase this year was a reprive from the normal 4 or 4.5% increase over the last 6 years. There is nobody that can actually believe this is sustainable.

@Michael2012, I would be pleased to engage you in a discussion on the state of Warwick's Pension plans. But first you need to educated yourself on the issue. I have provided many examples of material that you can study, some produced by me and many others by various experts from around the country and journalists who are well educated on the issue.

Hopefully after reviewing this information you won't be laughing anyone.

Copy and paste each link into your browser.

November 1, 2011, Warwick's Ticking Time Bomb - Analysis of Mayor Scott Avedisian's testimony before RI House and Senate Finance Committee on condition of Warwick Pension plans:

https://www.youtube.com/watch?v=kd9ikdZ-NIs&feature=plcp

November 26, 2011, GoLocalProve.com, Russell J. Moore - "Warwick Facing Pension Meltdown"

http://www.golocalprov.com/news/warwick-facing-pension-meltdown/

April 23, 2012, Testimony Robert Cushman on before the Rhode Island Municipal Pension Commission:

https://www.youtube.com/watch?v=1szWn2kXaPY&feature=g-upl

April 23, 2012, Testimony Michael Downey, Council 94 & Warwick citizen, Roger Durand before the Rhode Island Municipal Pension Commission:

https://www.youtube.com/watch?v=J5-vo36T-60&feature=plcp

May 5, 2012, GoLocalProv.com, "Former Warwick Councilman Accuses Mayor of Ignoring Pension Problem"

http://www.golocalprov.com/news/warwick/

May 22, 2012, GoLocalProv.com, "Councilman Says ‘Time is Running Out’ for Warwick":

http://www.golocalprov.com/news/new-councilman-says-time-is-running-out-for-warwick/

May 29, 2012, Mercatus Center at George Mason University, "Waking Up Warwick, Rhode Island",:

http://neighborhoodeffects.mercatus.org/2012/05/29/waking-up-warwick-rhode-island/

May 29, 2012, National Review Online, "Public Pensions and Rosy Projections"

http://www.nationalreview.com/corner/301217/public-pensions-and-rosy-projections-veronique-de-rugy

May 30, 2012 State Budget Solutions,: "Warwick, Rhode Island's discount rate ignorance is par for the course":

http://www.statebudgetsolutions.org/blog/detail/warwick-rhode-islands-discount-rate-ignorance-is-par-for-the-course#ixzz2CDW8h9Rz

August 2012 - Op-ed piece on Warwick Pensions in Providence Journal:

http://digital.olivesoftware.com/Olive/ODE/ProJo/LandingPage/LandingPage.aspx?href=VFBKLzIwMTIvMDgvMTA.&pageno=MTg.&entity=QXIwMTgwMQ..&view=ZW50aXR5

I'll take a look at all those links and get back to ya.

without even going through them all. First of all I'm noticing a lot of them are you tube which are edited to form an opinion. Further more, the other sources being projo, enough said if we are basing it on projo articles.

Opiniop of Pension Expert: May 29, 2012, Mercatus Center at George Mason University, "Waking Up Warwick, Rhode Island",:

May 29, 2012, National Review Online, "Public Pensions and Rosy Projections"

May 30, 2012 State Budget Solutions,: "Warwick, Rhode Island's discount rate ignorance is par for the course":

Are you willing to gamble on the fact that the current administration thinks everything is fine? That's your right. But consider this - what if they are wrong? And this - citizens with the resources don't have to stay in Warwick or Rhode Island for that matter and continue to pay more and more taxes for less and less services. We can move. That;s my plan, and when the city gets to a critical point where the increased revenue requirements can't keep up with the increasing expense requirements - reality will rear its ugly face and active employees will bear the brunt followed by retired employees.

What's your suggestion bob with that plan? Police and fire 1.

First you cannot just look at Police and Fire I pension plan. You have to look at all of the pension plans and the OPEB benefits and the entire city and school budget because they all effect one another.

Here is an analogy why. Let's say you have 5 credit cards. Four of the cards have a small balance on them but the last card has a huge balance many times that of the other cards. If you devise a plan to put more dollars toward paying down the last card it could cause you to short change the necessary payments to the other cards. Also how will diverting all these dollars effect other ongoing expenses in the home budget. For example expenses for kids, home repairs, cars, unforeseen emergencies. Do you just cut them or ignore the water pouring through the roof?

My point is you need to understand the total liabilities in the city and how much it will cost to fund all these plans in the short term and longer term 5, 10, 15 years from now. You also need to forecast future budgetary expenses for the things we need to operate the city and schools today and at least five years from now.

During the budget process I asked Mayor Avedisian and the school superintendent where is the five budget plan. They isn't any. We budget one year into the future and don't have a clue as to what effect decisions today will have tomorrow.

For example where is the plan to fund the capital expenses associated with purchasing the resource police, fire, municipal and school department will need so employees can do their jobs? The last thing we need is for police and firefighters to get hurt because they are using obsolete equipment or for our kids and school teachers to be at risk because we can't proper repair school buildings. Where are the long term funding plans to meet these obligations? Where is the long term plan to address the crumbling roads and building in the city? There is none.

Also how about the active employees? Don't you think they deserve raises in the next three years?

I don't agree with Avedisian linking pension saving for retired employees by not giving active employees raises. That needs to be broken. Police and Fire II retired members are getting 3 percent compounded COLA's over the next three years and active employees nothing. Is that fair? Many of these employees have young kids and there expenses are greater then the retired employees. Shouldn't they get a COLA? Pension reform policy should not be totally on the backs of active employees or the taxpayers. The retired employees will need to be part of the solution.

What effect will diverting large amounts of revenue on legacy benefits have on future employee compensation and employment levels? Across the country in city after city public service employees are taking a direct hit losing their jobs. Can we afford less public safety employees? I don't think so.

So to answer your question, we are not even close to the point of making specific suggestions on how to fix the Police and Fire I and all plans for that matter until we first all agree that there is a problem and sit down with experts and create a model that forecasts, based on reasonable assumptions, what the cost will be in the short term and the long term for retiree benefits, active employee costs and all other costs in the city and school budget and how much additional revenue we can raise without driving business and property owners away.

Or we could click our heels three times repeating there is not problem, there is no problem, there is no problem and wait for the current administration to leave and the bomb to explode. By that time someone, namely a judge will devise a plan to fix the problem.

Bob, I'm not a retiree. If there is no money and the rest of the world doesn't get a raise it is ok with me that current employees don't get one. As with retires, if that's what they agreed on when they retired that is what they should get. when I retire I hope the same holds true. Pension 1 is a problem but when push comes to hove there is no other way but to deal wit it. The city will find away. Not sure the legal rights from taking from one plan to another. I think some retires in other cities that got 5 & 6 percent are out of their mind but 3 is not outrageous. Only 2 years in the last 30 plus has social security not gotten a cola.

Also I'm not an avadesian fan, but I don't think he's been clicking his heals saying there isn't problem. He's made it clear it is a problem. I don't understand the story here. WE ALL KNOW ITS A PROBLEM....

I think the only ones that got a raise were the teachers, correct ???? I'm pretty sure the rest of them didn't get any raises and had to pay more, much more for medical for example.... So, to me as a tax payer it does seem like a lot has been changed and I do understand we are still recovering from a deep recession and Warwick has faired much better than most. The sky isn't falling yet. Heck people still won't admit global warming is occurring due to the industral revolution. Remember, the economy is down. Once things rebound, the airport expands, businesses grow, people start buying some of these foreclosed homes the city revenue will increase.

@DougMartin - Do you agree with my suspposition that we need to look at all expenses and we need to analyze the overall growth in expenses and revenue to determine if we can sustain current spending?

Based on my anaylsis we can't.

This budget year is a harbinger of what is to come. Police, fire and municipal employees are not receiving raises. The school department budget was level funded. Any raises for teachers is being paid for with cuts in other parts of the school budget. Across the board all employees are paying a 20 percent cost sharing for health-care.

You would think based on those facts we would not have needed any property tax increase this year.

And yet the 2013 city budget has approximately $4 million more in spending compared to last year.

Since 2007 local tax dollars to support the city budget has increased or 52.8 percent overall. School spending over the same period has increased 4.9 percent.

So to recap:

* no raises for city employees;

* School budget level funded;

* Employee paying more for healthcare cutting cost by millions;

and city spending increasing by million..

Why you might ask?

Legacy costs associated with pension and OPEB costs are increasing at unsustainable rates.

And you don't think we have a problem?

What going to happen in a few years when the current contracts expire and every city employee is going to demand a raise while pension and OPEB costs climb even higher?

If we are raising taxes still under the current circumstances, how are we going to meet those expenses. Taxes by law can only increase so much unless city leaders impose taxes over the cap. That may be a possibility. WHat's that going to do to property owners?

I hope your right and the ecomony taking off soon, but am very doubtful of that - because not only Warwick, but other cities and towns and this state and the country for that matter are heading off the fiscal cliff sooner then you think.

My only other point is that the claim that the mayor and government are not lrevealing all the pieces is crazy. There are multiple layers looking at all of this, from state, local and private firms. I think they are going to take a look at all of the pieces. This economy will get much better. It might not happen in a week or even a year but it will happen.

Mr Martin and Mr. Cushman, Not to mention we had a very light snow year last year. If we get a real New England winter, the cost of overtime and salt will really put us behind the eightball. Goodbye yearly surpluss. BtW, hope is not a strategy.

don't worry about snow thanks to global warming

Michael,

Thats awesome. Lets sell our plows! ;-)

there is no reason not to believe the stock market will not average 8 percent or better. Heck my IRA with a Yacktman Fund is up 23 percent since I bought it a couple years ago. The stock market has its ups and downs but always long term does well. If it didn't than we would be a 3rd world nation economically.

Michael2012, I deal with facts, not with "reasons to believe"

Now you sound like the administration where before a packed crowd of city employees during the budget process they quoted pension returns over the first 3 months of this year at over 12 percent. The employees gave them a standing ovation. I though it was pretty sad and outragious that the mayor and his menions would resort to such a manipulative tactic to decive the employees. They bought it, lock, stock and barrel.

And you don't think the mayor has been trying to hide the problem? The only reason it is getting more difficult for him is that it has finally become a major financial problem across the country. When the city council passed a resolution to bring in actuarial experts to study all these plans the mayor vetoed it. Why would he do that? Maybe to hide the real truth?

Now for the facts on city pension returns. Keep in mind current actuarial pension projections assume a 7.5% expected rate of return. When that doesn't happen unfunded liabilities increased and taxpayer and employee contributions increase. Curently taxpayer pay more than 25% of some public safety employee salary into the pension plan. 25 percent! That's unsustainable. In private industry you would be lucky to get a 5% match on your 401k. It's going to get worse.

Pension Plan Investment Performance Summary as of 12/31/2011 taken from official city documents

Police/Fire I 1 year (0.0%) 3 years (12.0%) 5 years (2.6% ) 7 years (4.5%) 10 years (5.3%) Since inception (5.3%)

Police II 1 year (0.1%) 3 years (12.0%) 5 years (2.6%) 7 years (4.6%) 10 years (5.7%) Since inception (5.7%)

Fire II 1 year (-0.5%) 3 years (12.2%) 5 years (2.7%) 7 years (4.6%) 10 years (N/A) Since inception (6.0%)

Municipal 1 year (-0.4%) 3 years (12.0%) 5 years (2.5%) 7 years (4.5%) 10 years (5.8%) Since incepttion (5.8%)

So to recap - Warwick hasn't received a 7.5% return on any plan in over 15 years. Do some reasearch on what many experts are forecasting as the new norm in America regarding the stock market and pension returns. It's not reflective of a 7.5% average.

Why don't we just scrap the plan and put city employees into social security and medicare. The city would be forced to pay its match. There could also be a 401k that the city could put a small match into 2.5-3% depending on the economy. Wouldn't we have a much more civil society if the public workers and the taxpayers were on the same side of the table.

most businesses match on a 401k up to 6 percent. So that is below the private sector. Also let me get this straight. If Bob is saying the stock market is over projected, than why would any one want a 401 k ?? Just looking at it both ways.

pensions work, either private or public sector. One of the greatest downfall of employment in America is the switch from pensions to 401k. The problem is the pensions are like cookie jars for some places, and hence they get robbed. Look at social security for example. So accountability is the key factor in maintaining them.

but, it does seem like social security was never attended to actually pay out !! Think about it for a minute. You pay into it all your life, yet the actual age that you are able to collect goes up and up. Who the heck wants to retire in their 70's !!! That is old ! Not me, as soon as I can collected social security which is 62 years old I will. I don't care if it is less money per month.

The cookie jar example with social security is the so called medical disability and collecting social security. Oh my neck and back hurts (yeah the one people use in car crashes). It is very difficult to prove or disprove a "bad back".

as I write this I just read the RI Mall is coming back !!!! It will create hundreds of jobs and increase revenue to the city. That is what I'm talking about. The more businesses the more tax revenue. Does Bob figure in the projected numbers of an economic recovery?

also, if only 1 officer is still in Plan 1 than why is it so under funded? is that 1 officer in the plan an ex Chief or some thing ???

How does Obamacare figure in??

the fiscal cliff for the nation is not the same as in Warwick. How can we compare Warwick to the national debt of 16 trillion owed to China ? The Bush tax cuts that are ending will suck but that wasn't meant to be life long cuts !!!

Hey, I don't like paying taxes either, but taxes are a necessary evil in life. They also are necessary in a Democratic society.

Warwick is nice because of all the comforts of this service economy.

What stocks is that money located in because those are terrible returns for the stock market ??? They must be in a very safe investment platform that has little return investment. Because you would think by investing millions even in a safe investment than the returns would be much better !!!

As I private investor I can get 23% plus returns from the stock market with a lot less money !!! Perhaps they should go talk to the folks over at Fidelity to make them some money !!!

I saw this response to a simular comment made by a NY union boss regarding a stock market uptick.

"When Comptroller Thomas DiNapoli announced last month that New York’s state and local pension fund had earned 14.6 percent on its investments in fiscal 2010-11, the AFL-CIO’s Dennis Hughes said the the comptroller’s numbers had “call[ed] into question the need for so-called ‘pension reform’.”

This response was from a renown pension expert:

"Sure, we can expect (and hope) the markets rebound at some point. But Dennis Hughes fails to take into account two critical fundamentals. One is the idea of geometric growth. Let’s say I sit down to play poker with $1000 in chips. On the first hand, I lose 50% of them. On the second hand, I win 60% of my remaining chips back. Big hand! Only at the start of my second hand, I only had $500 in chips left. What’s 60% of 500? So I won $300 back and have $800 in chips in front of me. I’m still down, in other words. So even when the S&P bounces back, the New York State Pension Fund will still be underfunded due to outsize hits it took in recent bad years.

Same principals apply to Warwick's pension plans.

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