Wants to help cut costs by bringing them under state system
Continuing his commitment to bring
a steady hand to public finances throughout the state, Rhode Island General
Treasurer Seth Magaziner announced the "Healthy Local Pensions
(HELP)" proposal, which will help cities and towns with locally
administered pension systems improve performance and reduce costs through the
state's Municipal Employees' Retirement System (MERS).
"Too many locally-managed
municipal pension plans are struggling, costing cities and towns millions of
dollars and threatening the retirement security of hard-working municipal
employees," said Treasurer Magaziner. "This proposal provides a new
tool for municipalities to get their pension plans back on track."
More than 75 percent of the
municipal pension plans in Rhode Island are already in the state-run MERS
system. Due to the size of the state pension system, municipal plans in MERS
enjoy a healthy funding status, stronger investment performance and lower costs
than most smaller locally-managed plans are able to achieve on their own.
While the 116 municipal plans in
the state system have an average funded status of 83%, the pension plans that
remain locally administered carry a combined $2.4 billion unfunded liability.
Of the 34 locally administered plans, 19 are below 60 percent funded and
12 are below 40 percent.
Current MERS requirements are prohibitively rigid for some critically funded municipal plans to the MERS system. HELP will make it easier for municipal pension plans to enter MERS by offering longer amortization periods and allowing certain parts of the pension benefit structure to conform to MERS standards gradually instead of immediately, provided they still meet acceptable actuarial guidelines.
Under the HELP proposal, the
decision to join the state's plan remains optional and must be collectively
bargained by the municipality and its labor organizations. Each MERS plan's
funded status is calculated separately, meaning new plans entering MERS do not
create additional risk for plans already in the system and will not affect the
funding status of the state employees', teachers', or current MERS members'
plans.
The bill would also provide an
option for municipalities with closed plans, in which no new participants will
be added, to turn over management of investments to Treasury without changes to
benefits. These closed plans would not be considered part of the MERS system.
The proposal is expected to be
introduced in the General Assembly in the coming weeks.
