PROVIDENCE, R.I. – Continuing his commitment to bring a steady hand to public finances throughout the state, Rhode Island General Treasurer Seth Magaziner today announced the "Healthy Local Pensions (HELP)" proposal, which will help cities and towns with locally administered pension systems improve performance and reduce costs through the state's Municipal Employees' Retirement System (MERS).
"Too many locally-managed municipal pension plans are struggling, costing cities and towns millions of dollars and threatening the retirement security of hard-working municipal employees," said Treasurer Magaziner. "This proposal provides a new tool for municipalities to get their pension plans back on track."
More than 75 percent of the municipal pension plans in Rhode Island are already in the state-run MERS system. Due to the size of the state pension system, municipal plans in MERS enjoy a healthy funding status, stronger investment performance and lower costs than most smaller locally-managed plans are able to achieve on their own.
While the 116 municipal plans in the state system have an average funded status of 83 percent, the pension plans that remain locally administered carry a combined $2.4 billion unfunded liability. Of the 34 locally administered plans, 19 are below 60 percent funded and 12 are below 40 percent.
Current MERS requirements are prohibitively rigid for some critically funded municipal plans to the MERS system. HELP will make it easier for municipal pension plans to enter MERS by offering longer amortization periods and allowing certain parts of the pension benefit structure to conform to MERS standards gradually instead of immediately, provided they still meet acceptable actuarial guidelines.
Under the HELP proposal, the decision to join the state's plan remains optional and must be collectively bargained by the municipality and its labor organizations. Each MERS plan's funded status is calculated separately, meaning new plans entering MERS do not create additional risk for plans already in the system and will not affect the funding status of the state employees', teachers', or current MERS members' plans.
The bill would also provide an option for municipalities with closed plans, in which no new participants will be added, to turn over management of investments to Treasury without changes to benefits. These closed plans would not be considered part of the MERS system.
The proposal is expected to be introduced in the General Assembly in the coming weeks.
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