Despite concessions, Woonsocket’s pension is forecast to run dry

Despite concessions, Woonsocket’s pension is forecast to run dry

WOONSOCKET – In February of 2013, Woonsocket’s former firefighters and police officers gathered for a meeting with state finance officials at Woonsocket High School.

The city’s pension system, they were told, would dry up in eight years unless major changes were made.

As part of a plan to restore the city’s financial stability, the retirees would need to give up their cost of living adjustment, a solution presented as the group’s share in sacrifices that had to be made to right the fiscal ship. In the negotiations that followed, police and fire retirees were able to retain a small portion of their COLA, with the promise that full benefits would be restored once the pension account was funded at 80 percent, a benchmark the city was expected to reach in 22 years.

But that will never happen, according to members of the city’s Pension Investment Board and consultants hired to look at the issue.

And worse, they say state officials used unrealistic projections for the city’s investment returns, and, as it stands, the system will likely run out of money in 10 to 15 years.

“The fund itself is on hospice care,” said Board Chairman Richard Lepine. “We are the custodians of a fund that will die too soon.”

According to an actuarial report by USI Consulting Group delivered to the city on October 26, “The approved contribution schedule will no longer fully fund the plan within the targeted 22 year period. Furthermore, this schedule is no longer expected to allow for the attainment of an 80 percent funded status during the projection period and therefore the 3 percent COLA is not expected to take effect.”

The news was presented to the City Council at a work session this week, with Lepine explaining how poor decisions – including the voter-approved move to fund the account with a $90 million bond in 2002 – landed the city in the dire situation. The bond was expected to fully fund the account, but instead, thanks to a crashing market and less than ideal decisions made by outside investors hired by the city, Woonsocket’s pension system is funded at less than 50 percent.

“The folks at Wilshire didn’t necessarily do the best job in the world,” Lepine said of Wilshire Associates, an investment firm hired, and then fired, by both the state and the city in the early 2000s.

Now, Woonsocket must pay back that $90 million bond, while still making contributions to the system.

Lepine said that currently, the city pays out around $8 million a year for pension benefits from an account that has a balance of roughly $40,795,000.

Under a plan laid out by the Budget Commission, those invested funds are supposed to continue to grow at a rate of 7.5 percent, while the city contributes another $3.6 million annually.

The bond payment, meanwhile, currently adds up to around $7.1 million per year.

“It’s costing us close to $11 million to get a benefit of $8 million,” said Lepine.

But for the past several years, the investment board has followed a conservative investment strategy to protect the funds that remain. As a result, the city’s returns are closer to 5 percent than the projected 7.5.

To achieve the 7.5, “the majority of funds in the investment pool would have to be in stocks and equities,” a more risky strategy not considered wise under the current liability.

“We’re doing our best to maintain this fund for as long as possible, and to ensure that payments are being made to the retirees,” Lepine explained. “The members of this board serve voluntarily knowing that this fund will fail.”

There are currently 236 pensioners in the city’s system, a fund that covers police and firefighters hired before 1985, nearly all of whom are now retired. The account to pay their pension benefits has a liability of $88 million and is currently 50 percent funded.

But if the city assumes a 5 percent return on investments, the liability jumps to around $110 million.

The poor financial situation is further escalated by the need to pay back the bond, which Lepine said cannot be refinanced.

“On many different levels, that bond was a problem,” said Lepine. “I want to call it a nightmare, but it’s a problem.”

“We are the poster children of what not to do,” Lepine continued. “This was of our own making, and the voters of Woonsocket overwhelmingly approved it.”

The financial experts presented a state bailout as the only viable solution.

“The state of Rhode Island, having an $8 billion pension fund, is in a much better position to find a solution to this problem,” Lepine said.

Council President Albert Brien, who used to serve as a member of the Investment Board, may have best summed up the council’s reaction.

“You didn’t use the term, Mr. Chairman, but I will,” he said to Lepine. “This is a disaster.”

Comments

I knew it was a joke when i found out just how limited it's powers are. The can got kicked and the taxpayers of Woonsocket got massive tax hikes without the real reform they deserve. The ship is still taking on water and there's more austerity on the horizon.

Let me begin by thanking Mr. Lepine and his team in keeping the ship afloat. I have been able to look over the report submitted to the City concerning the pension and have some questions that need to be addressed.
1- Who is the Pension Plan Investment Advisor ?
2- Was the Pension Plan last audited ?
3- Why did the Fund lose $ 3 million dollars ?
4- What is the "benefit data clean-up" and why did it cost $ 2 million dollars ?
5- Why does the City charge retirees $ 280,000.00 a year for investment and administrative expenses ?
6- Why aren't the police and fire retirees on the board ?
7- Why did the State Director of Revenue ignore Mr. Lepine's warnings concerning the fund ?

I respectfully request answers to my questions.

Here it comes.. You think the supplemental tax and that small hike was bad? This is worse.. So glad I got out of that place

Unfortunately, ever since Woonsocket declared itself a sanctuary city many decades ago the end was in sight. Between the massive HUD and Section 8 properties, there will be no return to prosperity. Sorry. That's a fact. There comes a time when honest, hard working homeowners have to make a decision to finally sell their homes. It's not an easy decision when property values are at historic lows and personal ties to the city pull at our heart strings, but like any difficult business decision, we need to eventually cut our losses before we lose everything. There is absolutely nothing on the horizon that shows a return to prosperity or the return of property price in Woonsocket. I know, I know, easier said than done. But the longer you wait, the more you lose.

Bad financial advice by both private and public entities combined with historic issues associated with economic woes in Woonsocket make this a painful issue. Perhaps the state needs to offer some relief since they are part of the problem. Does Woonie do anything right?

RI love affair with Public safety unions has bankrupted the entire state. 20 and 25 year pensions with cola's and health care have never been sustainable. Add the phony, oh I am sorry, dubious work related disability pensions has sucked the life out of this back woods state. The natives think being screwed is normal and accept it. The Mob controlled the stet before and it was replaced by the Public safety unions who used the same methods. Thugery and extortion. The Public safety pensions of Prov, Woonsocket, No. Prov and Pawtucket are over $1billion dollars underwater.Put a fork in RI. It is done!

So, urco, you completely discount the fact that these towns and cities AGREED to fund these pensions, often illegally underfunded them, did not review annual yields and routinely see if they were on track, did not inform the participants that the fund was off track so that contributions and benefits could be adjusted? It means nothing when the towns violate the law? Where is that accountability in your reasoning?

I always use the method my father used to translate their published numbers to something more accurate and realistic. Take their income forecast and divide it by two. Then take their expense forecast and double it for state projects and triple it for federal projects.

Works pretty good. for me.