PROVIDENCE, R.I. (WPRI) – A first-ever report by the state has found many Rhode Island communities with independent pension plans cannot provide important information about their investments, and most of the plans remain “dangerously” underfunded.
In a letter accompanying the data, General Treasurer Seth Magaziner said it “shows that, at a high level, most locally administered [plans] remain in critical status with dangerously low funding levels. Significant work remains to make these pension plans sustainable for the future. The financial security of thousands of Rhode Islanders depends on progress on this front.”
Magaziner, a first-term Democrat, has proposed legislation that would make it easier for the 34 independent local pension plans to join the state-run retirement system, which he argues could improve their financial security. The plans had a combined shortfall of nearly $2.4 billion as of 2015, according to the report.
- PDF: Treasurer Magaziner’s letter on the data
- PDF: Performance data for local RI pension plans
- PDF: Fee data for local RI pension plans
Four years ago, a Target 12 investigation revealed the 34 plans were all over the map when it came to their investment performances and how much they paid to manage the money, with some places failing to track basic data about their assets.
Magaziner indicated a lack of transparency remains a problem.
“Unfortunately, several communities have yet to provide complete investment and expense data for this iteration of the report,” he wrote. “For example, to date, six local plans have not reported 5-year investment returns and eleven plans have not reported 10-year investment returns. Despite inquiries made to the communities, it is also unclear in many cases whether returns reported are gross or net of fees.”
Among the plans that did report investment earnings through June 2016, the top performer was Smithfield’s police plan, with a 5-year return of 12.02% and a 10-year return of 6.45%. The worst performer over five years was Woonsocket’s public-safety plan, with a return of 2.64%, and the worst performer over 10 years was West Warwick’s town plan, with a return of 2.83%. (Woonsocket did not report its investment return over the last 10 years.)
By comparison, Rhode Island’s state-run pension system earned a return of 4.8% over the last 10 years and 5.75% over the last five.
“Further,” Magaziner continued, “the way that municipalities track and report their expenses and performance varies significantly, making it difficult to make accurate comparisons across plans.” Two-thirds of the 34 plans did not report how much they pay an investment consultant, including Providence, which has by far the largest shortfall in the group, at nearly $1 billion.
The General Assembly tasked Magaziner’s office with compiling the pension data annually under a new law that state Sen. Ryan Pearson successfully enacted last year. Despite the incomplete information provided, the senator said he’s pleased with the first effort.
“Combined with the recent analysis of statewide debt levels, this view on pensions is allowing state policy makers to have a better understanding of municipal financial health than ever before,” Pearson, D-Cumberland, said in an email. “It is imperative that a close eye be kept on all municipal pension plans to ensure taxpayers are getting good returns and low costs.”