Historical Rhode Island pension information

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The historical Rhode Island pension information below applies to prior calendar years. The tabs below may contain information from several different fiscal years; for example, the tab labeled "As published 2015" contains information from fiscal years 2013 and 2012 (the most recent data available at the time of initial publication). For more current information regarding Rhode Island's pension system, click here.

As published 2016

Rhode Island information (2015)

Total contributions: $694,479,000

Employee contributions: $104,433,000

Government contributions: $590,047,000

Total payments: $1,040,474,000

Total cash and investment holdings: $9,212,875,000

Number of state and local pension systems: 39

Active membership: 32,757

Inactive membership: 9,468

Key terms

Actuarial value of assets (AVA) • Unfunded actuarial accrued liability (UAAL) • Annual required contribution (ARC) • Discount rate • Funded ratio • Rate of return • Active member • Inactive member • OPEB

Hover over the above terms for definitions.

Note: This page utilizes information from a variety of sources. The information presented on this page reflects the most recent data available as of August 2016.

Rhode Island public pensions are the state mechanism by which state and many local government employees in Rhode Island receive retirement benefits.

According to the United States Census Bureau, there were 39 public pension systems in Rhode Island as of 2015. Of these, five were state-level programs, while the remaining 34 were administered at the local level. As of fiscal year 2015, membership in Rhode Island's various pension systems totaled 42,225. Of these, 32,757 were active members.

HIGHLIGHTS

In fiscal year 2015, the most recent year for which information is available, total contributions of $694.5 million were made to Rhode Island's state and local pension systems. Of this amount, $104.4 million came from employees.

In fiscal year 2015, Rhode Island's state and local pension systems made payments totaling $1.0 billion.

As of fiscal year 2015, Rhode Island's state and local pension systems held $9.2 billion in total cash and investment holdings.

According to a 2013 report by Morningstar, an independent financial research group, most states' pension plans continued to be funded below the 80 percent level considered necessary for a healthy fund. Decreased funding and increasing liabilities since the 2008 recession continued to put pressure on local and state budgets, in some cases leading to bankruptcy. Higher pension costs can have the following consequences:

• higher taxes
• less intergovernmental aid for services
• lower credit ratings
• higher interest rates on state borrowing

State pension systems can vary in their organization, management, and accounting principles, making them difficult to compare. The basic information on this page comes from the U.S. Census Bureau, as reported by the states and pension funds themselves for fiscal year 2015.

General information

See also: Pension data, U.S. Census

According to the U.S. Census Bureau, Rhode Island had five state pension plans as of 2015:

1. Rhode Island Defined Contribution Retirement Plan
2. Rhode Island Employees Retirement System
3. Rhode Island Municipal Employees' Retirement System
4. Rhode Island State Police Retirement Benefits Trust
5. Rhode Island Judicial Retirement Benefits Trust

In addition to the aforementioned state-level pension systems, there were 34 locally administered pension systems in Rhode Island.

The table below provides general pension system information for Rhode Island and surrounding states.

General pension system information, 2015
State	Systems		Total members	Active members		Inactive members
	State	Local		Members	Percent of total	Members	Percent of total
Rhode Island	5	34	42,225	32,757	77.58%	9,468	22.42%
Connecticut	N/A	206	196,761	175,650	89.27%	21,111	10.73%
Massachusetts	14	N/A	419,717	314,756	74.99%	104,961	25.01%
New Hampshire	2	3	60,028	49,240	82.03%	10,788	17.97%
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015"

Contributions

See also: Pension contribution and payment data, U.S. Census

Pension contributions are the funds paid into pension systems. These contributions come from the employer (in the case of public pensions, the government) and employees. Investment earnings are the main source of increases in the fund and are listed separately in the rightmost column in the below table.

In fiscal year 2015, the most recent year for which information is available, total contributions of $694.5 million were made to Rhode Island's state and local pension systems. Of this amount, $104.4 million came from employees. The remainder came from state and local governments. The table below provides information about pension contributions in Rhode Island and surrounding states in fiscal year 2015.

Pension contributions, fiscal year 2015 (dollars in thousands)
State	Total contributions from employees and employers	Employee contributions		Government contributions		Earnings on investments
		Contributions	Percentage of total	Contributions	Percentage of total
Rhode Island	$694,479	$104,433	15.04%	$590,047	84.96%	$317,178
Connecticut	$3,292,112	$742,085	22.54%	$2,550,027	77.46%	$2,750,689
Massachusetts	$5,129,721	$1,968,873	38.38%	$3,160,848	61.62%	$5,606,935
New Hampshire	$558,282	$208,701	37.38%	$349,581	62.62%	$288,260
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015"

Payments

See also: Pension contribution and payment data, U.S. Census

Payments are the amounts paid to pension recipients by their pension plans. Pension payments include benefits and withdrawals. Benefits are the regular payments made by a pension plan to the plan's recipients. Pension beneficiaries may also withdraw funds before they are due to receive regular benefits.

In fiscal year 2015, Rhode Island's state and local pension systems made payments totaling $1.0 billion. The table below provides pension payment information for Rhode Island and surrounding states in fiscal year 2015. The columns labeled "Benefits," "Withdrawals," and "Other" are subsets of total payments. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000).

Pension payments, fiscal year 2015 (dollars in thousands)
State	Total payments	Benefits	Withdrawals	Other
Rhode Island	$1,040,474	$1,000,407	$12,155	$27,915
Connecticut	$4,416,643	$4,334,387	$27,010	$55,245
Massachusetts	$7,217,066	$6,555,354	$210,913	$450,795
New Hampshire	$717,311	$657,762	$26,501	$33,048
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015"

Other post-employment benefits

See also: Other post-employment benefits, data

In addition to standard pension payments, some plans may offer pensioners additional benefits. These benefits, sometimes referred to as "other post-employment benefits," or "OPEBs," consist of health insurance, life insurance or other benefits that the pensioner may have received while employed. The cost of these benefits can prove complicated for actuaries to calculate because of the changes in fields like medicine. This, coupled with the normal challenges in calculating and meeting pension requirements, can result in funding shortages for pension plans.

Unfunded liabilities totaled nearly $500 billion throughout the country for OPEBs. Rhode Island was reported to have about $858 million in unfunded liabilities for OPEBs. This was equal to about 0.17 percent of the country's total unfunded liabilities for these other services.

The chart below displays the unfunded liabilities for Rhode Island and its surrounding states. All dollar amounts displayed should be multiplied by 1,000,000. For instance, $300 translates to $300,000,000.

Unfunded actuarial accrued liabilities for other post-employment benefits, fiscal year 2013 (dollars in millions)
State	Unfunded liabilities	Percent of total
Rhode Island	$858	0.17%
Connecticut	$22,581	4.54%
Massachusetts	$15,377	3.09%
New Hampshire	$1,857	0.37%
U.S. total	$497,693	100%
Source: National Association of State Retirement Administrators, "Retiree Health Care Benefits for State and Local Employees in 2014," accessed April 30, 2015. Note: Although this article was dated for 2014, all figures were reported to have come from fiscal year 2013 reports.

Cash and investment holdings

See also: Pension data, U.S. Census

Investments are a crucial part of the pension process. The goal is that, by investing pension contributions, the pensioner will receive more money when he or she retires than he or she and the employer were able to contribute. These investments can come in the form of cash investments, short-term investments, securities, or other investments. Cash investments are usually low-risk, short-term investments that have a lower rate of return than other types of investments. Other short-term investments are riskier than cash investments, but have the potential for greater returns. Securities can refer to stocks, bonds, or other types of financial certificates that hold some sort of financial value. As the values of these securities change, they can be traded to make a profit. While there are other applications of securities investments, this represents one of the most common practices.

As of fiscal year 2015, Rhode Island's state and local pension systems held $9.2 billion in total cash and investment holdings. The table below summarizes pension system cash and investment holdings for Rhode Island and surrounding states. The columns labeled "Total cash and short-term investments," "Total securities," and "Total other investments" are subsets of the grand total. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000).

Total cash and investment holdings, fiscal year 2015 (dollars in thousands)
State	Grand total	Total cash and short-term investments	Total securities	Total other investments
Rhode Island	$9,212,875	$284,440	$8,204,392	$724,043
Connecticut	$38,425,038	$2,003,751	$31,608,540	$4,812,747
Massachusetts	$74,458,401	$1,603,736	$57,806,783	$15,047,882
New Hampshire	$7,758,843	$110,898	$6,903,966	$743,979
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015"

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.

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 % of total net assets	Five-year rate of return
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%
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." Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," July 1, 2013

As published 2015

Public pensions in Rhode Island

General information (2013)

Total contributions: $687,450,000

Employee contributions: $192,072,000

Government contributions: $495,378,000

Total payments: $1,102,278,000

Total cash and investment holdings: $8,511,634,000

Number of state and local pension systems: 13 (1 state system, 12 local systems)

Active membership: 37,122

Inactive membership: 8,572

Pension health (2012)

Assets: $6,295,214,000

Actuarial accrued liability (AAL): $10,816,459,000

Unfunded actuarial accrued liability (UAAL): $4,521,245,000

Funded ratio: 58.2%

UAAL per capita: $4,280

Public pensions in the states

Alabama • Alaska • Arizona • Arkansas • California • Colorado • Connecticut • Delaware • Florida • Georgia • Hawaii • Idaho • Illinois • Indiana • Iowa • Kansas • Kentucky • Louisiana • Maine • Maryland • Massachusetts • Michigan • Minnesota • Mississippi • Missouri • Montana • Nebraska • Nevada • New Hampshire • New Jersey • New Mexico • New York • North Carolina • North Dakota • Ohio • Oklahoma • Oregon • Pennsylvania • Rhode Island • South Carolina • South Dakota • Tennessee • Texas • Utah • Vermont • Virginia • Washington • West Virginia • Wisconsin • Wyoming

Public pensions • State public pension plans • Rhode Island state budget and finances

Note: This page utilizes information from a variety of sources. As such, the currency of the information varies somewhat. The information presented on this page reflects the most recent data available as of March 2015.

Rhode Island public pensions are the state mechanism by which state and many local government employees in Rhode Island receive retirement benefits.

According to the United States Census Bureau, there were 13 public pension systems in Rhode Island as of 2013. One of these was a state-level program, while the remaining 12 were administered at the local level. As of 2013, membership in Rhode Island's various pension systems totaled 45,694. Of these, 37,122 were active members.

According to a 2013 report by Morningstar, an independent financial research group, most states' pension plans continued to be funded below the 80 percent level considered necessary for a healthy fund. Decreased funding and increasing liabilities since the 2008 recession continued to put pressure on local and state budgets, in some cases leading to bankruptcy. Higher pension costs can have the following consequences:

• higher taxes
• less intergovernmental aid for services
• lower credit ratings
• higher interest rates on state borrowing

HIGHLIGHTS

Between fiscal years 2008 and 2012, the funded ratio of Rhode Island's state-administered pension plans decreased from 61.7 percent to 58.2 percent. The state paid 100 percent of its annual required contribution, and for fiscal year 2012 the pension system's unfunded accrued liability totaled $4.5 billion. This amounted to $4,280 in unfunded liabilities per capita.

Background

The basic information on this page comes from the U.S. Census Bureau, as reported by the states and pension funds themselves for fiscal year 2013. Also included are comparative data from three different reports, which looked at the states' Comprehensive Annual Financial Reports (CAFRs).

General information

See also: Pension data, U.S. Census

According to the U.S. Census, Rhode Island had only one state pension plan as of 2013:

1. Rhode Island Employees Retirement System

In addition to the aforementioned state-level pension systems, there were 12 locally administered pension systems in Rhode Island.

The table below provides general pension system information for Rhode Island and surrounding states.

General pension system information, 2013
State	Systems		Total members	Active members		Inactive members
	State	Local		Members	Percent of total	Members	Percent of total
Rhode Island	1	12	45,694	37,122	81.24%	8,572	18.76%
Connecticut	6	55	155,014	138,093	89.08%	16,921	10.92%
Massachusetts	14	86	370,577	308,704	83.3%	61,873	16.7%
New Hampshire	2	2	58,761	50,135	85.32%	8,626	14.68%
Vermont	3	2	33,095	25,696	77.64%	7,399	22.36%
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013"

Contributions

See also: Pension contribution and payment data, U.S. Census

Pension contributions are the funds paid into pension systems. These contributions come from the employer (in the case of public pensions, the government) and employees. Investment earnings are the main source of increases in the fund and are listed separately in the rightmost column in the below table.

In fiscal year 2013, total contributions of $687 million were made to Rhode Island's state and local pension systems. Of this amount, $192 million came from employees. The remainder came from state and local governments. The table below provides information about pension contributions in Rhode Island and surrounding states in fiscal year 2013.

Pension contributions, fiscal year 2013 (dollars in thousands)
State	Total contributions from employees and employers	Employee contributions		Government contributions		Earnings on investments
		Contributions	Percentage of total	Contributions	Percentage of total
Rhode Island	$687,450	$192,072	27.94%	$495,378	72.06%	$894,165
Connecticut	$2,797,253	$645,440	23.07%	$2,151,813	76.93%	$5,041,830
Massachusetts	$4,798,875	$1,898,451	39.56%	$2,900,424	60.44%	$7,078,906
New Hampshire	$467,624	$203,611	43.54%	$264,013	56.46%	$853,492
Vermont	$195,022	$79,442	40.73%	$115,580	59.27%	$291,549
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013"

Payments

See also: Pension contribution and payment data, U.S. Census

Payments are the amounts paid to pension recipients by their pension plans. Pension payments include benefits and withdrawals. Benefits are the regular payments made by a pension plan to the plan's recipients. Pension beneficiaries may also withdraw funds before they are due to receive regular benefits.

In fiscal year 2013, Rhode Island's state and local pension systems made payments totaling $1.1 billion. The table below provides pension payment information for Rhode Island and surrounding states in fiscal year 2013. The columns labeled "Benefits," "Withdrawals," and "Other" are subsets of total payments. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000).

Pension payments, fiscal year 2013 (dollars in thousands)
State	Total payments	Benefits	Withdrawals	Other
Rhode Island	$1,102,278	$1,065,014	$12,290	$24,974
Connecticut	$3,971,602	$3,821,090	$36,789	$113,723
Massachusetts	$6,500,305	$5,994,304	$246,687	$259,315
New Hampshire	$646,872	$592,325	$23,401	$31,146
Vermont	$278,634	$254,237	$6,099	$18,298
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013"

Cash and investment holdings

See also: Pension data, U.S. Census

As of fiscal year 2013, Rhode Island's state and local pension systems held $8.5 billion in total cash and investment holdings. The table below summarizes pension system cash and investment holdings for Rhode Island and surrounding states. The columns labeled "Total cash and short-term investments," "Total securities," and "Total other investments" are subsets of the grand total. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000).

Total cash and investment holdings, fiscal year 2013 (dollars in thousands)
State	Grand total	Total cash and short-term investments	Total securities	Total other investments
Rhode Island	$8,511,634	$416,599	$7,822,470	$272,565
Connecticut	$32,522,521	$1,052,104	$31,056,635	$413,782
Massachusetts	$64,984,732	$894,635	$58,868,672	$5,221,426
New Hampshire	$6,450,662	$14,695	$5,617,328	$818,639
Vermont	$3,613,701	$118,799	$2,924,189	$570,713
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013"

Pension health

Pension health is a term used to describe the overall state of pension systems. It can be difficult to gauge pension health in each state, but many studies use calculations to determine the average liabilities, unfunded liabilities, funded ratio and other data. Most experts believe that pension systems need to be funded at least 80 percent to be considered healthy. This information is then used to provide a snapshot of the state's overall pension health. This section provides information from three studies regarding the health of pensions in Rhode Island and neighboring states. They found the following:

• According to the Pew Charitable Trusts, Rhode Island paid 100 percent of its required contribution and its funded ratio was only 58 percent in fiscal year 2012.
• According to Morningstar, the state had a per capita pension debt of $4,280 and a funded ratio of 58.2 percent in fiscal year 2012.
• According to State Budget Solutions, which assumed a lower rate of return, Rhode Island had a per capita pension debt of $16,050 and a funded ratio of 31 percent in fiscal year 2013.

Pew research

See also: Pew Charitable Trusts pensions study, 2014

According to a 2014 report by the Pew Charitable Trusts, “Many states are seeing their pension debt continue to increase, despite reform efforts, because of missed contributions and the continued impact of investment losses.” The funding gap between what state pension systems have promised in benefits (liabilities) and current funding (assets) increased by $158 billion from 2010 to 2012 (14 percent), leaving state-run retirement systems with $915 billion in unfunded liabilities. Only 15 states made at least 95 percent of the annual required contributions (ARCs) for their pensions between 2010 and 2012; the aggregate shortfall in funding for all state plans was $21 billion. Data on these state pensions come from the Comprehensive Annual Financial Reports (CAFRs) that each state’s pension plan prepared for fiscal year 2012; these reports include actuarial valuations based on “the expected rate of return on investments and estimates of employee life spans, retirement ages, salary growth, retention rates, and other demographic characteristics.”

All dollar amounts displayed should be multiplied by 1,000,000 (e.g., $240,000 is equal to $240,000,000,000).

Pension health metrics from the Pew Charitable Trusts report, 2010-2012 (dollars in millions)
State	2012			Funded ratio			Percent of ARC paid
	Liability	Unfunded	ARC	2010	2011	2012	2010	2011	2012
Rhode Island	$10,816	$4,521	$367	49%	59%	58%	100%	100%	100%
Connecticut	$48,200	$24,546	$1,699	53%	55%	49%	87%	91%	100%
Massachusetts	$71,622	$28,104	$1,669	71%	65%	61%	65%	103%	87%
New Hampshire	$10,433	$4,573	$257	59%	58%	56%	100%	100%	100%
Vermont	$4,754	$1,418	$92	75%	73%	70%	94%	95%	118%
Totals in the U.S.	$3,298,643	$914,653	$87,213	75%	74%	72%	78%	77%	77%
Source: The Pew Charitable Trusts, "The Fiscal Health of State Pension Plans: Funding Gap Continues to Grow"

Morningstar report

See also: Pension data, 2013 Morningstar report

In 2013, independent investment research firm Morningstar released "The State of State Pension Plans 2013," a report detailing various metrics of pension system health in all 50 states. Morningstar found a $1.2 trillion gap in 2012 for the largest 100 U.S. public pension plans (according to the actuarial firm Milliman). Based on two key drivers in Morningstar’s analysis—the funded ratio and the unfunded actuarial accrued liability (UAAL) per capita—the fiscal solvency and management of these plans varied greatly. Overall, the firm found that "more than half of all states fall below Morningstar’s fiscally sound threshold of a 70 percent funded ratio" and all state plans combined were "72.6 percent funded with a UAAL per capita of roughly $2,600.”

According to Morningstar's research, Rhode Island's state pension system was funded at a rate of 58.2 percent in fiscal year 2012. The table below provides state pension system health metrics for Rhode Island and surrounding states in fiscal year 2012. Figures in the columns labeled "Assets," "AAL," and "UAAL" are rendered in thousands of dollars (for example, $2,400,000 translates to $2,400,000,000). Figures in the remaining columns have not been abbreviated. To view the full report, click here.

Pension health metrics from the Morningstar report, fiscal year 2012
State	Assets	Liabilities (AAL)	Unfunded liabilities (UAAL)	Funded ratio	Unfunded liabilities per capita
Rhode Island	$6,295,214	$10,816,459	$4,521,245	58.2%	$4,280
Connecticut	$23,654,500	$48,200,500	$24,546,000	49.1%	$6,922
Massachusetts	$42,649,119	$64,267,758	$21,618,639	66.4%	$3,338
New Hampshire	$5,861,896	$10,421,426	$4,559,531	56.2%	$3,470
Vermont	$2,918,189	$4,265,516	$1,347,327	68.41%	$2,158
Totals in the U.S.	$2,157,578,916	$2,979,267,860	$821,688,945	72.40%	N/A
Source: Morningstar, "The State of State Pension Plans 2013: A Deep Dive Into Shortfalls and Surpluses," accessed September 16, 2013

State Budget Solutions report

See also: Pension data, State Budget Solutions report

State Budget Solutions is "a nonpartisan, nonprofit, national public policy organization with the mission to change the way state and local governments do business." It should be noted that although the organization is technically nonpartisan, its ideology and mission have conservative leanings. In November 2014, the organization released a research report that used a fair market valuation based on a discount rate of 2.743 percent to determine the unfunded liabilities of public pension plans. The group concluded that "state public pension plans were underfunded by $4.7 trillion in 2014, up from $4.1 trillion in 2013. Overall, the combined plans' funded status ... dipped 3 percentage points to 36 percent. Split among all Americans, the unfunded liability [was] over $15,000 per person."

According to the State Budget Solutions report, Rhode Island's pension plans were funded at a rate of 31 percent. To read the full report, click here.

Note that all dollar amounts displayed (excluding those under the "Unfunded liability per capita" column) should be multiplied by 1,000 (e.g., $240,000 is equal to $240,000,000).

Pension health metrics from the State Budget Solutions report, fiscal year 2013 (dollars in thousands)
State	Assets	Market liability*	Funding ratio	Unfunded liability	Unfunded liability per capita	Unfunded liability as % of 2013 gross state product
Rhode Island	$7,524,961	$24,409,768	31%	$16,884,807	$16,050	32%
Connecticut	$25,765,325	$112,357,458	23%	$86,592,133	$24,080	35%
Massachusetts	$42,974,758	$147,019,968	29%	$104,045,210	$15,545	23%
New Hampshire	$6,112,228	$22,023,284	28%	$15,911,056	$12,026	23%
Vermont	$3,468,330	$10,600,652	33%	$7,132,322	$11,375	24%
Totals in the U.S.	$2,679,831,466	$7,416,319,293	36%	$4,736,487,827	$15,052	29%
Source: State Budget Solutions, "Promises Made, Promises Broken 2014: Unfunded Liabilities Hit $4.7 Trillion"

Other factors

Rate of return

According to a 2012 analysis by the Pew Center for the States, most state pension plans assumed an 8 percent rate of return on investments at that time. Proponents argued that an 8 percent rate of return would bear out over the long-term (15-30 years). Critics asserted that this assumption was unrealistic, citing changing market conditions and lower investment returns across the board in preceding years.

Assuming a lower rate of return to predict investment earnings increases current plan liabilities, thereby lowering the percent funded ratio and requiring 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. 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. 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.

Financial crisis

In the wake of the 2008 recession, proponents of a lower assumed rate of return argued that the standard 8 percent assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Jeffrey Friedman, a senior market strategist at MF Global, said, "To target 8 percent means some aggressive trading. Ten-year Treasury [bonds] are yielding around 2 percent, economists say we are headed for a double-dip, and house prices aren't getting back to 2007 levels for the next decade, maybe.".

Advocates of the 8 percent return rate argued that the dip following the 2008 financial crisis did not prove that there was a long-term downward trend in investment returns. According to Chris Hoene, executive director of 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."

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.

Studies and reports

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.

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	Five-year rate of return
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." Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," accessed July 1, 2013

Other post-employment benefits

See also: Other post-employment benefits, data

In addition to standard pension payments, some plans may offer pensioners additional benefits. These benefits, sometimes referred to as "other post-employment benefits," or "OPEBs," consist of health insurance, life insurance or other benefits that the pensioner may have received while employed. The cost of these benefits can prove complicated for actuaries to calculate because of the changes in fields like medicine. This, coupled with the normal challenges in calculating and meeting pension requirements, can result in funding shortages for pension plans.

Unfunded liabilities totaled nearly $500 billion throughout the country for OPEBs. Rhode Island was reported to have about $858 million in unfunded liabilities for OPEBs. This was equal to about 0.17 percent of the country's total unfunded liabilities for these other services.

The chart below displays the unfunded liabilities for Rhode Island and its surrounding states. All dollar amounts displayed should be multiplied by 1,000,000. For instance, $300 translates to $300,000,000.

Unfunded actuarial accrued liabilities for other post-employment benefits, fiscal year 2013 (dollars in millions)
State	Unfunded liabilities	Percent of total
Rhode Island	$858	0.17%
Connecticut	$22,581	4.54%
Massachusetts	$15,377	3.09%
New Hampshire	$1,857	0.37%
Vermont	$1,644	0.33%
U.S. total	$497,693	100%
Source: National Association of State Retirement Administrators, "Retiree Health Care Benefits for State and Local Employees in 2014," accessed April 30, 2015. Note: Although this article was dated for 2014, all figures were reported to have come from fiscal year 2013 reports.

Public pensions in 2012

The funding ratio for Rhode Island'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.

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."

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. 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).

The following information was collected from the plans' Actuarial Valuation Reports. The "percentage funded" was 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. The Government Accountability Office (GAO) and Pew Research Centers cited a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggested that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater." The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis used a rate of return of 3.225 percent, which was based upon the 15-year Treasury bond yield. The organization called this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Beginning in 2006, all private sector corporate pension plans incorporated market costs into their funding schemes.

Basic pension plan information -- Rhode Island
Plans	Current value	Percentage funded		Unfunded liabilities		Membership
		State figure	SBS figure	State figure	SBS figure
Employees' Retirement System - State Employees	$2,421,191,542	56.3%	N/A	$1,876,069,769	N/A	11,166 active members
Employees' Retirement System - Teachers	$3,746,299,871	58.8%		$2,626,781,473		13,212 active members
Municipal Employees' Retirement System	$1,238,175,548	82.5%		$262,298,831		7,422 active members
State Police Retirement Benefits Trust	$84,293,968	89.6%		$9,737,719		231 active members
Judicial Retirement Benefits Trust	$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.

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. As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants were instructed to use an actuarially determined contribution or a statutory contribution for reporting purposes.

ARC historical data
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%

Public pensions in 2011

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).

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.

The adjusted net pension liability for Rhode Island in fiscal year 2011 was ranked the 34th highest in the nation. 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.

Historical data

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%

Historical pension plan data - ERS (state employees)
Year	Value of assets	Accrued liability	Unfunded liability	Funded ratio
2007	$2,493,428,522	$4,332,888,818	$1,839,460,296	57.5%
2008	$2,700,368,568	$4,331,504,516	$1,631,135,948	62.3%
2009	$2,646,081,020	$4,482,244,291	$1,836,163,271	59.0%
2010	$2,532,090,798	$4,234,409,675	$1,702,318,877	59.8%
2011	$2,443,690,798	$4,255,362,463	$1,811,671,665	57.4%
Change from 2007-2011	-$49,737,724	-$77,526,355	-$27,788,631	-0.1%

Historical pension plan data - ERS (teachers)
Year	Value of assets	Accrued liability	Unfunded liability	Funded ratio
2007	$3,737,981,686	$6,750,125,236	$3,012,143,550	55.4%
2008	$4,044,954,378	$6,632,016,708	$2,587,062,330	61.0%
2009	$4,008,931,337	$6,900,963,108	$2,892,031,771	58.1%
2010	$3,873,118,262	$6,266,400,444	$2,393,282,182	61.8%
2011	$3,776,407,834	$6,325,941,951	$2,549,534,117	59.7%
Change from 2007-2011	$38,426,148	-$424,183,285	-$462,609,433	4.30%

Historical pension plan data - MERS
Year	Value of assets	Accrued liability	Unfunded liability	Funded ratio
2007	$1,064,615,664	$1,179,233,489	$114,617,825	90.3%
2008	$1,174,567,205	$1,266,286,829	$91,719,624	92.8%
2009	$1,196,366,995	$1,355,652,690	$159,285,696	88.3%
2010	$1,196,385,142	$1,626,621,365	$430,236,223	73.6%
2011	$1,204,814,823	$1,428,879,301	$224,064,478	84.3%
Change from 2007-2011	$140,199,159	$249,645,812	$109,446,653	-6.00%

Historical pension plan data - SPRBT
Year	Value of assets	Accrued liability	Unfunded liability	Funded ratio
2007	$45,996,910	$60,427,947	$14,431,037	76.1%
2008	$54,927,390	$69,029,513	$14,102,123	79.6%
2009	$60,232,045	$75,480,005	$15,247,960	79.8%
2010	$65,760,284	$73,048,680	$7,288,396	90.0%
2011	$73,151,768	$74,185,705	$1,033,937	98.6%
Change from 2007-2011	$27,154,858	$13,757,758	-$13,397,100	22.50%

Historical pension plan data - JRBT
Year	Value of assets	Accrued liability	Unfunded liability	Funded ratio
2007	$29,630,637	$35,355,326	$5,724,689	83.8%
2008	$34,670,394	$38,115,602	$3,445,208	91.0%
2009	$36,839,221	$41,738,040	$4,898,819	88.3%
2010	$38,074,287	$46,641,701	$8,567,414	81.6%
2011	$40,105,919	$46,594,407	$6,488,488	86.1%
Change from 2007-2011	$10,475,282	$11,239,081	$763,799	2.30%

Reforms

2011

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:

• 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. Forbes contributor Tom Siedle has argued that the reforms put both taxpayers and retirees at risk.

See also

• Public pensions in the United States
• Rhode Island state budget and finances
• Tax policy in Rhode Island
• Pension statistics
• Public pension health by state
• Public pensions

External links

• Pension Tsunami
• Pension Calculator from Public Sector Inc.
• Center for Retirement Research at Boston College, "How did state/local plans get so underfunded?"
• Employees Retirement System of Rhode Island