On May 4, 2009, RIPEC released its analysis of local government’s pension system including pensions administered by the State of Rhode Island‘s Municipal Employees’ Retirement System (MERS) and locally-administered plans that are not in MERS. Currently, the State of Rhode Island administers the Municipal Employees Retirement System (MERS) for approximately 110 municipal pension plans for general employees, police and fire, for about 30 municipal governments whereas about 37 pension plans are locally-administered by 25 communities. 

The report finds that:

• Municipal budgets allocate nearly $149.0 million in pension costs in FY 2009, increasing from $101.5 million in FY 2004, or 46.7 percent during that time frame;
• As a percentage of their operating budgets (excluding education costs) local governments appropriate 10.8 percent of their budgets to cover pension costs in FY 2009, whereas in FY 2004 it accounted for 9.2 percent of the general fund budget; and
• Pension costs per employee amounted to $6,579 for a municipal employee, $21,377 for a police employee, and $26,901 for a firefighter in FY 2009. As a comparison, pension costs, on average, amounted to $10,638 per state employee in the FY 2009 budget.

Based on the most current available information for each plan, the estimated funding ratio for MERS is 90.3 percent as of June 30, 2007. The locally administered pension plans had an estimated collective funding ratio of 45.0 percent as of June 30, 2006; and MERS has an unfunded liability of $114.6 million (June 30, 2007) while locally administered plans have a total unfunded liability of $1.6 billion (June 30, 2006).

Governor Carcieri proposed several reforms to the current pension system for state, teachers and municipal employees in his FY 2009 supplemental budget that are pending before the General Assembly.  The proposed changes impacting local governments include reductions to the disability pension benefits where the employee is not totally disabled; sets minimum retirement ages on non-vested municipal employees, including police and firefighters; and applies all age, years of service, and contribution rates established under the Municipal Employees’ Retirement System (MERS) to all municipally administered pension plans. Specifically, the proposal:

• Modifies the date of retirement or years of service for state and municipal workers t be eligible to receive a pension;
• Changes the maximum benefit and establishes reporting criteria for municipal employees, police and firefighters who retire on accidental disability after July 1, 2009;
• Increases the employee contribution rate for MERS plans from 6 percent to 7 percent, and increasing the police and firefighter employee contribution rate from 7 percent to 8 percent as of July 1, 2009;
• Applies the MERS age, years of service, and contribution rates established under MERS to all municipally administered pension plans; and
• Reduces the funding requirement for the Teacher Retirement System to 25.0 percent of the actuarial rate from April 1 to June 30.

To reduce risk, control the rate of growth in pension expenditures, and to improve the local funding status RIPEC recommends that local governments undertake a review of the current pension system funding and structure. Similar to the House of Representatives study committee on pensions, municipal governments need to review the current pension system and where necessary seek General Assembly approval of pension changes.  Communities with plans not part of the State MERS should seriously consider merging their self-administered plans into the MERS. Any mergers will not happen quickly; however, they can be phased-in over time to address local needs and capabilities.