Huge payments put dent in Pawtucket's pension problem

Huge payments put dent in Pawtucket's pension problem

PAWTUCKET – This year, city taxpayers are contributing $14.4 million, or 11 percent of the entire $129 million municipal budget, to funding local police and fire pensions.

That number, say city officials, will continue to go up in coming years, as a pension plan that will likely be here generations from now continues to pay out amounts of at least that figure every year.

Finance Director Joanna L’Heureux said this week that the city is ahead of a 2013 actuarial projection for this year, with a 46.1 percent pension funding level compared to a July 2013 projection of 42.9 percent for this year.

That same actuarial report predicted that Pawtucket taxpayers would be paying $15.7 million into the fund this year, more than a million more than the total for 2018-2019, meaning the city is doing quite a bit better than expected, said L’Heureux.

In 2013, Pawtucket officials had to, along with other communities running local pension plans, come up with a funding improvement plan (FIP) to get the local public safety pension plan from 34 percent funded and “critical status” to 60 percent funded. The city is currently projected to reach at least a required 60 percent funded status by 2025, seven years ahead of a 2032 deadline imposed by the state six years ago, said L’Heureux.

“Looking at the last valuation, we should make it there early,” she said.

The Breeze reported back in 2015 that over the previous six years, Pawtucket’s overall municipal budget had increased by about $3 million, to $112 million, as the annual required contribution into the pension fund had jumped from $9.1 million to $13 million, or 11.6 percent of the budget at the time.

That increase on the yearly “ARC” payment was about $1 million more than the city’s total budget increase, meaning the overall budget would actually have gone down without the payment.

The funding level for Pawtucket’s pension fund rose from 34 percent funded to about 40 percent funded from 2013 to 2015, meaning it climbed about another 6 percent from 2015 to 2018.

Officials have long said that rising pension costs hamper the city’s efforts to invest in critical infrastructure and services, though they’ve continued to prioritize upgrades to roads and schools, among other improvements.

For comparison, an annual payment number that will increase to $14.7 million next year was once in the range of $2 million to $3 million, said L’Heureux.

“That number has gone up significantly,” she said. “We’re making a dent.”

The taxpayer contribution will continue to rise by amounts ranging from $300,000 to $500,000 per year, she added.

In addition to the city paying 100 percent of its actuary-determined contributions, the 2013 FIP had multiple other layers, including increased payments from pensioners. Negotiations with both police and firefighters led to increased pension payments, from 7.5 percent of salaries to 9 percent for both departments.

The police and fire pension plan, which includes about 400 retirees and 300 active members, undergoes a rigorous evaluation process each year, said L’Heureux. The assumed rate of return of 7.5 percent is regularly debated, she said, but has been proven to be both good and fair given the city’s long-term approach with the plan, with officials viewing it as a “lifetime investment.” The life-to-date return on investment has been greater than 7.5 percent overall, despite having some down years.

“This plan is going to be here for generations,” she said.

The liability keeps going up with people living longer and new pensioners added, said L’Heureux, and the city has made extensive changes to reduce the impact of those increased costs, including creating measures pushing public safety employees to work longer instead of retiring around age 50.

Though police and fire have addressed the need for increased contribution amounts through negotiated contracts, another piece of the puzzle, a retiree lawsuit over lost pay increases, is expected to go to trial this spring.

Members of Mayor Donald Grebien’s administration say they’re not ready to say whether the city will see a tax increase this year, with pending fire contract impacts, school funding and other major variables still to be decided.

L’Heureux said it was back around 2010 when Grebien was first elected that the City Council agreed that the $5 million that had been going toward an old synchronization bond (getting city taxes on a synchronized schedule like many others) and was finally being paid off would start going toward the pension fund. That money going toward a pension fund that the city hadn’t been funding at 100 percent got the ball rolling on starting to address the significant problem facing the city, she said, and the city has been making its ARC payment ever since, cutting elsewhere to make it work.

Since Grebien took office, the city has paid in an “astronomical” amount more in eight years compared to the previous 25 years, said L’Heureux. When she started with the city in 2012, she said, there were a couple years where the city had to break an investment to put it in cash and pay out benefits, but the city now makes its payments in regularly planned quarterly sums.

For many years, she said, elected officials kept kicking the can down the road, neglecting to fully fund the pensions while watching its funded status steadily decline.

Benefits being paid out of the plan are about the same as the amount going in, at $14.46 million in payouts this year, so the gains are really being made on the money in the fund compounding with interest, she said.

According to last July’s actuarial evaluation, the city went from being 43.7 funded in 2017 to 46.1 percent funded a year later. Accrued liabilities for both active and retired workers went up during the year from $267 million to $271 million, but assets also climbed, from $116.9 million to $125 million.

“The increase in our assets was greater than our increase in our liability so the unfunded liability went down, that is why our funded ratio has increased,” said L’Heureux.


Now days most companys do not offer pension plans, the company can't afford it.
This is a drag on the city so, the city should offer an insurance pension plan that the police themselves pay into. The plan and their Social Security, they'll make out.

they dont pay into social security!