July 13, 2007

More Background on the State of the State’s Pensions

Carroll Andrew Morse

Two more articles on pensions worth reading. The first is from Steve Peoples in the Projo

Pensions for teachers and state employees will cost Rhode Island taxpayers $397 million next year.

That’s an increase of roughly $50 million, or 14 percent, over this fiscal year. And it represents a significant and unexpected new burden for every city and town at a time when any additional state aid to local communities has all but dried up.

The cost of the state pension system, which covers more than 45,000 working and retired state employees and public school teachers, for the next fiscal year was set by the State Retirement Board this week. The numbers will be used as the state and municipalities craft budgets that will take effect July 1, 2008 — a process that has already begun…

The rising costs are largely because there isn’t enough money in the system to pay for the state’s pension obligations, something known as unfunded liability. The state is in the 7th year of a 30-year plan to pay off its unfunded liability, which has risen from $4.3 billion to $4.9 billion, according to the actuary’s report.

Officials say that the state’s unfunded liability is growing for two main reasons: most retirees are simply living longer; and the fund continues to suffer from the lingering effects of the poor stock market performance several years ago. This wasn’t supposed to happen.

Also, Joe Mysak of Bloomberg News has picked up on the municipal pensions story…
Municipalities don't do a good job of putting money away for pensions. They also aren't good investors. That's another part of the puzzle, when it comes to public pensions. You have to save money, and you also have to invest it prudently. On page 21 of [the RI Auditor General's] 36-page report, there's a table comparing assumed rates of return to actual rates of return.

The 25 municipalities who run their own pension plans all thought they would make average returns of 7.85 percent. Between 2002 and 2006, they made an average of 4.7 percent.

The auditor general makes a number of suggestions, among them creating a pooled investment trust for locally administered pension plans, and doing away with local plans entirely.

We hear a lot about state pension funds, and almost nothing about the ones being run at the local level. That's going to change, because the real problems are in the cities, towns and counties.

According to the Rhode Island General Treasurer’s Office, the state employee retirement system had a 7.5% return on its investments over the 2002-2006 period. That’s quite a difference from the 4.7% return in the municipal systems.

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Can we have a round of applause for Paul Tavares? Long term return in the stock market is 7% to 8%. He got that percentage by directing more diversified investments, and the return includes that stinker of a year 2002. I don't think we can count on that level of performance - we'll just have to see how Caprio does.
Yes to pooled municipal pension plans professionally directed. I live in Jamestown where we are overfunded at 123% for our only local pension plan. But we get a return that a monkey throwing darts could equal.

Posted by: chuckR at July 13, 2007 4:39 PM

Can we have a round of applause for Paul Tavares?
No. Under his rule pension contributions nearly tripled without his uttering a word about it.

Posted by: Mike at July 13, 2007 7:28 PM


Did Tavares create the sweetheart pension deals or did he just have to deal with them? Seriously - I thought this could be pinned on the usual suspects in the House and Senate. Correct me if I'm wrong.

Posted by: chuckR at July 13, 2007 7:58 PM

chuckR... you're wrong...

the bogey man is the Assembly who took from the pension fund in the early '90's to bail out the banking bosses.

Posted by: Pat at July 13, 2007 10:05 PM

>the bogey man is the Assembly who took from the pension fund in the early '90's to bail out the banking bosses.

Just goes to show that when it comes to the welfare pimp - public sector union - Democrat Party trinity, there's no honor among thieves!

Posted by: Tom W at July 14, 2007 12:47 AM

Is that 7.5% actual or is it an assumed rate. I seem to remember reading something that led me to believe it was a projected return. Is part of the return an assumed rate of growth on real estate they might own like the old Union Station?

Posted by: JC at July 14, 2007 11:17 AM


The 7.5% is a real rate, based on comparing FY2006 to FY2002, and not a future projection.

Posted by: Andrew at July 14, 2007 11:43 AM

taveras and his staff.., did an excellent of investing retirement funds.

it is shockingly clear that the state does not pay enough attention to this which has a huge effect on the future finances of ri

Posted by: johnpaycheck at July 15, 2007 8:20 AM

I guess what I don't understand is why do I have to pay for all of these pensions, who pays for mine.

Posted by: rhode island resident at July 15, 2007 10:32 AM

rhode island resident

You will pay because the majority of RI voters have for decades pulled the master lever in favor of single party rule. The voters have not demanded fiscal discipline. They have not paid attention to what those who represent them have obligated them to pay. On the local level, the same applies. Labor amity has trumped common sense bargaining positions.
When it gets too far out of whack, the end results will be painful. In the private sector, the best example of this is Detroit's Big 2.5 automakers. Resources that should be devoted to developing and manufacturing cars that people want to buy are spent instead on unsustainable benefits, benefits granted over decades by weak willed managers. Those managers continue to award themselves unjustifiable salaries, benefits and incentives. When the house of cards falls down, the workers will get hit worst. Labor negotiators need to be careful what they ask for, they just might get it.

Posted by: chuckR at July 15, 2007 12:08 PM

"Labor negotiators need to be careful what they ask for, they just might get it."

They have been getting it. For a couple of decades. And it is not sustainable.

This is because, in pulling the lever for one party as you said, ChuckR, Dem voters are also too often unwittingly pulling the lever to put the public labor union on both sides of the bargaining table. This is especially egregious at the School Committee level, though it carries right on up to the City/Town Councils and the state legislature with whom is vested the power of taxation.

And while the Ethics Commission has, against all common sense, given its stamp of approval to the practice of members of public labor unions negotiating on behalf of the taxpayer, that does not change that it is an act of blatant conflict of interest that has resulted - "they just might get it" - in the state's present untenable fiscal situation.

This is why I admire the Governor. He is trying to make all of this work, in the face of antagonistic public labor unions and anarchists like myself who are tempted to just walk away from the situation.

Posted by: SusanD at July 15, 2007 3:08 PM


Concur completely - just found it awkward putting it in past tense.
Re; walking away - at age 57, with two kids who will probably not find a suitable job in this state, with a 30+ year career that exported software and ideas, imported money and paid taxes here, its hard to see why I should continue to put up with the shenanigans. All I ever needed to make a living was a highway (80% paid by the Feds) to an airport (largely self-sustaining). Just like so many public sector employees have already done, I may remove myself to another more tax-congenial state. And thats the problem for the union bosses who have been entirely too successful yelling "More,more,more".

Posted by: chuckR at July 15, 2007 5:36 PM

i think ri is just too far in the hole to ever get out.. the unfunded debt of the cities and towns and the state is getting worse and the momentum is going against the taxpayer.

its all over folks. we have deferred and postpooned reform and we will be too far in the hole when peopel start to make changes.

its amazing that the state is in such trouble and labor and pverty groups really dont care

Posted by: johnpaycheck at July 15, 2007 9:09 PM

"Re; walking away"

Should have been more clear. I didn't mean leave the state, I meant let state gov't implode on itself.

Hey, ChuckR, can you imagine if David Cicilline became Governor? He presides over spiraling education costs in Providence for his friends at the NEA, showing no fiscal restraint, and then every year at budget time, he throws a fit to get the state to bail him out of his own mess. This year with the state level funding (known as a cut in the real world, after factoring in state mandated pension contribution increases) cities and towns, he has actually threatened to turn the city over to the state.

If he became Governor, what would he do about the state deficits he runs up? Throw a temper tantrum to get the federal gov't to bail him out?!

Posted by: SusanD at July 16, 2007 11:19 PM

For the record, NEARI does not represent the Providence Teachers nor anyone employed by the City of Providence.

Posted by: Bob Walsh at July 17, 2007 8:19 PM

Correction: David Cicilline presides over spiraling education costs in Providence for his friends at AFL CIO Local 958 and, by extension, his friends in public labor unions around the state.

And not just by setting a higher compensation level that will have to be met in other cities and towns. We are, after all, brothers. And if a politician is taking care of one of our shops, we can be sure he will take care of all of us as he seeks higher office. (Even if he takes a little while to do so, as with Local 799.)

Posted by: SusanD at July 17, 2007 9:48 PM
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