Public pensions in Rhode Island

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Rhode Island public pensions
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Pension system
Number of pension systems 1
State pension systems: Employees' Retirement System of Rhode Island
System type: Hybrid
Pension health (2012)[1]
Fund value: $7,533,389,575
Estimated liabilities: $12,316,933,875
Unfunded liabilities : $4,783,544,300
Percent funded: 61.16%
Percent funded change: Decrease.svg0.98%[2]
Percent funded rank: 40[3]
Pension fund members (2012)
Total members: 66,981
Active members: 32,084
Other members: 34,897
Other state pension information
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Public pensions
State public pension plans
Public pension health by state
Rhode Island public pensions are the state mechanism by which state and many local government employees in Rhode Island receive retirement benefits. The Employees' Retirement System of Rhode Island oversees four separate plans:
  • Employees' Retirement System (includes state employees and teachers) (ERS)
  • Municipal Employees' Retirement System (MERS)
  • State Police Retirement Board Trust (SPRBT)
  • Judicial Retirement Board Trust (JRBT)

According to the United States Census Bureau, the state has 12 locally-administered pension systems.[4]

A 2012 report from the Pew Center on the States noted that Rhode Island's pension system was funded at 49 percent at the close of fiscal year 2010, well below the 80 percent funding level experts recommend. Consequently, Pew designated the state's pension system as cause for "serious concern."[5]

The funding ratio for the state's pension system increased from 59.65 percent in fiscal year 2007 to 61.16 percent in fiscal year 2012, an increase of 1.51 percentage points, or 2.5 percent. Likewise, unfunded liabilities decreased from nearly $5 billion in fiscal year 2007 to approximately $4.8 billion in fiscal year 2012.[6][7][8][9]


Pension plans

In fiscal year 2012, according to the plans' Actuarial Valuation Reports, Rhode Island had a total of 32,084 active members in its retirement plans.[6][7][8][9] Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[10]

The following data was collected from the plans' Actuarial Valuation Reports. The "percentage funded" is calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The assumed rate of return used to calculate fund value was 7.5 percent in fiscal year 2012.[6][7][8]Cite error: Invalid <ref> tag; invalid names, e.g. too many The Government Accountability Office (GAO) and Pew Research Centers cite a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggests that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[11][12] The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[13]

Basic pension plan information -- Rhode Island
Plans Current value Percentage funded Unfunded liabilities Membership
State figure SBS figure[14] State figure SBS figure[14]
Employees' Retirement System - State Employees[6] $2,421,191,542 56.3% N/A[15] $1,876,069,769 N/A[15] 11,166 active members
Employees' Retirement System - Teachers[6] $3,746,299,871 58.8% $2,626,781,473 13,212 active members
Municipal Employees' Retirement System[7] $1,238,175,548 82.5% $262,298,831 7,422 active members
State Police Retirement Benefits Trust[8] $84,293,968 89.6% $9,737,719 231 active members
Judicial Retirement Benefits Trust[9] $43,428,646 83.4% $8,656,508 53 active members
TOTALS $7,533,389,575 61.16% 33% $4,783,544,300 $15,007,090,000 32,084 active members

Annual Required Contribution

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, in 2010 Rhode Island paid 100 percent of its annual required contribution.[5][16]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[17] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[18]

ARC historical data[19]
Fiscal year ERS - state employees ERS - teachers MERS SPRBT JRBT
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2011 $126,560,644 100% $70,286,262 100% $29,469,064 100% $3,786,553 100% $1,298,278 100%
2010 $123,547,738 100% $68,542,956 100% $31,269,020 100% $3,590,615 100% $1,180,817 100%
2009 $126,297,706 100% $73,600,069 100% $33,514,681 100% $3,340,746 100% $1,700,174 100%
2008 $131,560,248 100% $82,455,777 100% $33,415,530 100% $3,720,281 100% $2,127,643 100%
2007 $118,300,522 100% $70,531,472 100% $26,697,326 100% $4,038,828 100% $2,362,671 100%

Historical funding levels

Historical pension plan data - all systems
Year Value of assets Accrued liability Unfunded liability Funded ratio
2007 $7,371,653,419 $12,358,030,816 $4,986,377,397 59.65%
2008 $8,009,487,935 $12,336,953,168 $4,327,465,233 64.92%
2009 $7,948,450,618 $12,856,078,134 $4,907,627,517 61.83%
2010 $7,705,428,773 $12,247,121,865 $4,541,693,092 62.92%
2011 $7,538,171,142 $12,130,963,827 $4,592,792,685 62.14%
Change from 2007-2011 $166,517,723 -$227,066,989 -$393,584,712 2.49%

Rate of return

Rhode Island's pension plans presume a 7.50 percent return rate on their pension investments.[6][7][8][9]


According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments.[25] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[26]

Using a lower rate of return to predict investment earnings accurately, however, increases the current plan liabilities. This would lower the percent funded ratio and and require increased employer contributions (ARCs). This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[27] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[28] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[29]

Financial crisis

The 2008 financial crisis had a devastating effect on pension plans nationwide because of slower economic growth and increased market volatility. Some market strategists found the 8 percent assumption to be overly ambitious and "dangerously optimistic."[30] Advocates for a lower assumed rate of return argue that the standard 8 percent assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected because of a higher rate of return, the fund would have a surplus and smaller future required contributions (ARCs), which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[31][32][33][34][35]

Traditional public pension plan advocates argue that the dip in recent years does not prove there is a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[30]

The National Association of State Retirement Administrators researched the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20- and 25-year periods ending in 2013 and found it was 7.9 percent over the 20-year period, and exceeded 8 percent for the 1-, 3- and 25-year periods. It is important to note that the NASRA data reported the median returns, which means that median annualized returns of investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[36]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.47 percent for Rhode Island) instead of the state-reported assumed rates of return (7.50 percent for Rhode Island as of June 30, 2011).[37]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 percent (Nebraska) to 241 percent (Illinois) of governmental revenues in fiscal year 2011.[37]

The adjusted net pension liability for Rhode Island in fiscal year 2011 was ranked the 34th highest in the nation.[37] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - Rhode Island
Governmental revenue* Personal income State GDP Per capita
State findings 91.3% 11.4% 10.5% $5,019
National ranking 12th 11th 12th 9th
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[37]

Pension fund management fees

See also: Public pension fund management fees

In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012 South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year) and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets) and its five-year rate of return was 7.53 percent.[38][39]

The table below presents the information collected by MPPI for states around Rhode Island. Unfortunately, the relevant information for Rhode Island was not available at the time of the study. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented.

Public pension fund management fees, 2011-2012
State Fiscal year Total net assets at the beginning of the year Total net assets at the end of the year Total management fees Management fees as a percentage of total net assets at the beginning of the year Five-year rate of return for the pension fund
Rhode Island1 N/A
Connecticut 2012 $25,086,280,000 $23,873,812,000 $87,099,000 0.35% 1.27%
Massachusetts 2012 $50,245,766,000 $48,867,807,000 $252,070,837 0.50% 0.11%
New Hampshire 2012 $5,891,179,000 $5,774,343,000 $22,908,000 0.39% 1.80%
Vermont 2012 $3,470,318,417 $3,450,571,044 $14,304,023 0.41% 2.30%
1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."[38]
Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," July 1, 2013


Enacted reforms


In November 2011, Rhode Island lawmakers passed the Retirement Security Act, which Fitch Ratings cited as "the most comprehensive pension reform package implemented by any state to date." Reforms included:[30][5][40]

  • Ending the defined benefit plan and replacing it with a hybrid plan for both current and future employees
  • Suspending cost of living adjustments until the system's funding ratio increases to at least 80 percent
  • Raising the retirement age from 62 to 67

Proponents contend that the reforms will, over the course of two decades, save state taxpayers over $4 billion. While a June 2011 actuarial valuation pointed to an immediate downsizing of the state's unfunded pension liability by $2.7 billion, the law has been met with numerous court challenges and significant criticism.[30] Forbes contributor Tom Siedle has argued that the reforms put both taxpayers and retirees at risk.[41]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has 12 locally-administered pension systems.[4]


See also: Public pension disclosure and Governmental Accounting Standards Board
  • The Employees' Retirement System of Rhode Island publishes a variety of data about each pension fund on its website, including actuarial information and investment information.[42]
  • Pension fund investment data is published. Information includes a breakdown of the investments, as well as total market value and percent invested in various index funds.[43]

Recent news

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See also

Additional reading

External links


  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. Rank is relative to the 50 state pension programs. "1" refers to the healthiest pension plan while "50" would be the least well-funded plan.
  4. 4.0 4.1 "Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010," United States Census Bureau, April 30, 2012
  5. 5.0 5.1 5.2 Pew Center on the States, "Widening Gap Update: Rhode Island," June 18, 2012
  6. 6.0 6.1 6.2 6.3 6.4 6.5 6.6 6.7 Employees' Retirement System of Rhode island, "Actuarial Valuation - June 30, 2012," accessed November 19, 2013
  7. 7.0 7.1 7.2 7.3 7.4 Municipal Employees' Retirement System, "Actuarial Valuation - June 30, 2012," accessed November 19, 2013
  8. 8.0 8.1 8.2 8.3 8.4 8.5 State Police Retirement Benefits Trust, "Actuarial Valuation - June 30, 2012," accessed November 19, 2013
  9. 9.0 9.1 9.2 9.3 9.4 Judicial Retirement Benefits Trust, "Actuarial Valuation - June 30, 2012," accessed November 19, 2013
  10. Organisation for Economic Co-operation and Development, "Pensions Glossary," accessed November 27, 2013
  11. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007. accessed October 23, 2013
  12. American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," July 2012. accessed October 23, 2013
  13. Governing Magazine, " Is There a Plot Against Pensions?" October 14, 2013
  14. 14.0 14.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  15. 15.0 15.1 Analysis only available for system totals and not individual funds.
  16. Government Accounting Standards Board, "Annual Required Contribution (ARC)," accessed October 17, 2013
  17. Reuters, "Little-known U.S. board stokes hot pension debate," July 10, 2012
  18. State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  19. The Employees' Retirement System of Rhode Island, "Annual Financial Report for the Fiscal Year Ending June 30, 2011," accessed November 19, 2013
  20. Municipal Employees' Retirement System, "2011 Actuarial Valuation Report," accessed November 20, 2013
  21. Municipal Employees' Retirement System, "2010 Actuarial Valuation Report," accessed November 20, 2013
  22. Municipal Employees' Retirement System, "2009 Actuarial Valuation Report," accessed November 20, 2013
  23. Municipal Employees' Retirement System, "2008 Actuarial Valuation Report," accessed November 20, 2013
  24. Municipal Employees' Retirement System, "2007 Actuarial Valuation Report," accessed November 20, 2013
  25. The Widening Gap Update, "Pew Center on the States," accessed October 17, 2013
  26. The New York Times, "Public Pensions Faulted for Bets on Rosy Returns," accessed May 27, 2012
  27. Benefits Magazine, "Public Pension Funding 101: Key Terms and Concepts," accessed October 23, 2013
  28. Crain's Chicago Business, "State teachers pension board lowers expected rate of return," accessed September 21, 2013
  29. Huffington Post, "California Pension Funds Expect Lower Investment Return," accessed March 14, 2012
  30. 30.0 30.1 30.2 30.3 Governing, "Expert: Governments Are Masking Their Pension Liabilities," accessed October 25, 2013
  31. The Washington Post, "Kansas’s pension funding gap just grew by $1 billion," accessed September 6, 2013
  32. Topeka Capital-Journal, "KPERS' unfunded liability rises to $10.2B," accessed September 4, 2013
  33. Wall Street Journal, "Pensions Wrestle With Return Rates," accessed October 10, 2011
  34. The Courant, "Promising Too Much On Public Pensions," accessed August 10, 2012
  35. Business Wire, "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," accessed October 22, 2013
  36. National Association of State Retirement Administrators, "Issue Brief: Public Pension Plan Investment Return Assumptions," accessed October 23, 2013
  37. 37.0 37.1 37.2 37.3 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," accessed June 27, 2013
  38. 38.0 38.1 Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland and 49 Other State Pension Funds," July 1, 2013
  39. Maryland Public Policy Institute, "About MPPI," October 7, 2005
  40. State of Rhode Island - Office of the General Treasurer, "The Rhode Island Retirement Security Act of 2011," accessed November 20, 2013
  41. Forbes, "Rhode Island Public Pension 'Reform' Looks More Like Wall Street Feeding Frenzy," April 4, 2013
  42. Employees' Retirement System of Rhode Island, "Home page," accessed November 20, 2013
  43. Employees' Retirement System of Rhode Island, "Summary of Performance," accessed November 20, 2013