President Santucci raises pension funding issues

President Santucci raises pension funding issues

SMITHFIELD – After a review of pensions for the Smithfield Police Department and Fire Department, a report presented by Town Council President Paul Santucci shows combined unfunded liabilities of $27,489,062 for the two departments’ pension programs.

Santucci, (pictured), presented the information on his own during a March 7 Town Council meeting, independent of the rest of the Town Council members.

“This is an important issue and it is an urgent issue,” Santucci said.

Pensions are essentially a promised retirement benefit calculated based on the number of years worked, age, the percentage of pay and other factors.

For example, a firefighter usually pays in a certain percentage of his paycheck to the department’s pension fund. The pension funds are then invested in a mix of stocks, bonds, and real estate. Over time, these investments are ideally supposed to result in a rate of return higher than the rate of inflation.

The Smithfield Police Department’s pension program was declared to be in critical status by in 2007. It has unfunded liabilities totaling $18,359,275.

In a 2007 statement from the Office of the Auditor General, a warning was issued:

“We are concerned that, unless the Town Council reviews this plan and decides on long-term solutions now, the fire pension plan will face the same crisis that the police pension plan is currently facing.”

A 2016 Standard & Poor assessment of the town’s credit rating, currently AA, states that Smithfield’s locally administered pension plans – the fire pension plan and police pension plan – have historically been underfunded at 70 percent and 24 percent, respectively.

The Smithfield Fire Department’s funded status has steadily dropped over the years, from 87.2 percent to 68.8 percent. Its current unfunded liabilities total $9,129,787.

At the time, the Office of the Auditor General recommended the council request the Fire Pension Committee to meet with the actuary to review the current status of the plan and long term solutions to maintaining the plan’s solvency.

Some of these steps are being taken.

The town implemented a funding improvement plan with state oversight to address the police pension plan. This increases contributions at or above the level of the actuarially determined contribution for 2015 and onward.

However, the fire pension plan’s contributions are tied to employee compensation. In 2015, the town funded only 41.3 percent of its ADC, to the fire pension plan. For comparison, the town contributed 110 percent of its ADC to the police pension plan that same year.

Though there is ground to make up with the fire pension, the town has begun to take action steps by increasing both employee and employer contributions through the collective bargaining process. Beginning in the 2017 fiscal year, the town’s contribution will increase by 1 percent annually, while employee contributions will increase from 1 to 10 percent of their annual compensation.

Despite this though, according to the S&P report, “the town expects to contribute only 45.7 and 47.8 percent of its ADC to the fire pension plan in fiscals 2016 and 2017, which could contribute to downward budgetary pressure if annual costs continue to rise.”

The credit report warns, “these costs could constrain budgetary performance over the next few fiscal years due to each plan’s funded status and unfunded liability.”

Santucci also noted that his presentation did not include pensions called OPEB or other post-employment benefits. These are benefits other than pensions, such as health and dental care, that the local government provides to retired municipal and school employees, according to Finance Director Randy Rossi.

The council president brought up these concerns because workshops for the 2018 operating budget are slated to begin March 28 at 5:30 p.m. Santucci asked residents and fellow council members to keep the pension liabilities in mind when approving a budget.