Portsmouth’s leaders are breaking with the rest of Rhode Island when it comes to pensions.
The Portsmouth Town Council voted last month to slash its locally run pension plan’s projected rate of return from 8% to 6.75%, making the Aquidneck Island community one of the most risk-shy anywhere. The state lowered its return forecast from 8.25% to 7.5% last year.
A pension system’s rate of return forecast is part of what determines the annual deposit taxpayers must make to keep the fund solvent. The lower the projected return, the less the pension fund’s investments are expected to earn – and therefore, the more money taxpayers need to put in up front.
At 6.75%, Portsmouth may have set the most conservative investment outlook in the state. A study by the auditor general’s office last year found the lowest rate of return used by any municipality was 7% in Warwick, Jamestown and Coventry; the average among all 36 locally run pension plans was 7.81%.
Portsmouth and other Rhode Island communities with independent pension plans were ordered to obtain new studies of their financial health under a provision of the landmark state pension law enacted last November, and many are now grappling with the results.
The new rate of return and other changes cut the Portsmouth pension system’s funded level from 61.5% to 51.7%, Town Administrator John Klimm told retirees in a letter mailed to them in May. “I am working with our actuary, pension investment adviser, and Town Council to improve the plan’s funded status,” he wrote.
The new 6.75% forecast in Portsmouth is even lower than the 7.25% that was proposed to the Republican-controlled council by its actuary and investment consultant, the Newport Daily News reported. The vote in favor was 4-2 and will add $1.2 million to the town’s 2013-14 budget.
Rebecca Sielman, an actuary with Milliman, said Portsmouth’s pension plan would be 55.3% funded, about 3.6 percentage points higher, if the council had opted to use a 7.25% investment forecast. Rhode Island law defines pension plans as “critical” if they are less than 60% funded.
The Portsmouth pension plan had 286 members as of July 1, 2011. The number of retirees collecting a pension from the plan rose to 83 last year, up from only nine in 2001. Taxpayers’ yearly contribution to the pension plan spiked from $1.2 million in 2002-03 to $2.8 million in 2012-13.