2017-04-06 / Around Town

Pension Plan in ‘Critical Condition’

By Tom Walsh

Newport’s fire and police department pension plans both remain underfunded, with the fire department’s plan considered to be in “critical condition,” according to state guidelines.

Newport’s firefighter plan is now reportedly funded at approximately 49 percent, while the police plan is at just more than 64 percent. The Rhode Island General Assembly enacted legislation that defined any pension plan funded at less than 60 percent as being in “critical condition.” The state now defines a “healthy” pension plan as one that is 80 percent funded.

Mayor Harry Winthrop said the city is on a payment plan that will contribute to the pensions each year until they are fully funded.

“By and large, the city has recognized the liability we have and is doing something about it,” he said.

The trust fund that the city contributes to each year could eventually play a larger role with pensions, Winthrop said.

Laura L. Sitrin, the city’s director of finance, said the city is on a path to satisfy the state’s "healthy" definition by 2023. “At any given time, actual results may vary from the assumptions that were used,” she said. “It definitely requires that someone pay close attention, making sure that current things are being done to make the pension plans healthy.”

Newport will pay more than $16 million in the current fiscal year to cover its pension contributions for more than 500 police, firefighters, municipal and school department retirees.

The city’s pension contributions for the 2016-17 fiscal year will total $16,442,932, according to Sitrin. Although employee salaries and other benefits always represent the most substantial budget line item, city and school pensions now consume approximately 12.7 percent of annual spending, Sitrin said.

“We’re very cautious and very conservative,” she said, describing her philosophy for guiding the city through these often-tricky matters.

That philosophy explains a recent decision by the city to trim its assumed rate of return from 7.50 to 7.25 percent on investments that support pension funds. When the rate of return is lowered, it increases the city’s pension costs.

“We’ve done all the right things,” Sitrin said. “The employer contribution increases when the liability increases.”

For the current fiscal year ending June 30, the city’s pension contributions are as follows:

• Police, $4,314,776

• Fire, $5,918,258

• Other municipal employees,

$2,365,251

• Teachers, $2,931,360

• Other school department employees, $913,287

Newport’s employee pension program dates back to the 1940s. Currently, the city owns and manages two single-employer defined pension plans for police and fire. All active and retired firefighters take part in the fire pension plan. Active and retired police employees take part in the police pension plan, except those who were hired after January 1, 2015 who receive pensions through the State of Rhode Island Municipal Employees Retirement System (MERS).

All other employees except teachers participate in the “agent multiple-employer defined benefit MERS plan.” Teachers participate in the Rhode Island Employees’ Retirement System (ERS) Plan and the Teachers’ Survivors Benefit Plan, which provides a survivor benefit to public school teachers as an alternative to Social Security.

Teachers, police officers and firefighters do not take part in Social Security. Newport employees may participate in voluntary 401K plans. The city and the school department do not contribute to those plans.

Recipients contribute to their pensions while they are working. Teachers contribute 10.75 percent of their salaries, while police officers and firefighters contribute eight and nine percent, respectively.

As of July 1, 2015, there were 125 police pensioners, 116 fire department pensioners, and 253 MERS pensioners.

Public employee pensions came into the spotlight in Rhode Island and across the United States in 2012. “The whole concept of pensions was exploding nationally,” Sitrin said. “It was a time of pension reform.” “

Winthrop said the city is committed to fully funded pensions. “When we signed a contract, we made a promise that retirees would get a pension. The way it’s being managed, I’m very happy with it,” he said.

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