Rhode Island General Treasurer Gina Raimondo submitted a letter to the Senate Committee on Finance, yesterday, expressing concerns about S2955, which would bring Central Falls retirees into the state Municipal Employees Retirement System (MERS). It would also make entry into the state’s fiscal oversight program for struggling communities a future path into MERS.
The treasurer’s main concern is that, even though the local plans in MERS are largely independent, adding significantly underfunded plans could add costs, particularly if they are retiree-only. “The MERS system was designed as an active employee retirement system,” she writes, describing plans into which current employees are paying without yet drawing benefits.
The risks of entering local plans into MERS arise in several ways. Plan design is one of them. Raimondo notes that the Central Falls retirees would be receiving cost of living adjustments (COLAs), even though the recently passed pension reform eliminated COLAs for any plan that is not 80% funded.
Assets and costs present a second challenge. Not only can the funds of other cities and towns not be used to pay Central Falls retirees’ benefits, but “the assets of the healthy MERS plans cannot be used to support the cost of administration” of newly introduced, troubled plans.
The treasurer’s third concern is that the State Retirement Board would be handed “fiduciary responsibility and related liability” for plans that municipalities have mismanaged in the past. “Will there be sufficient plan assets to pay expensive legal and administrative costs?”
Specifically, Raimondo’s letter points to the 9% of Central Falls retirees who are not party to the settlement agreement between the other 91% and the city’s receiver. “If the assets associated with all CF retirees are transferred to the State Retirement Board,” it may be pulled into litigation.
Last night, however, state Director of Revenue Rosemary Booth Gallogly told the Senate Committee on Finance that the Central Falls retirement system does not have any assets. Its plan would therefore have to be operated on a “pay as you go” basis.
Although the legislation leaves the city responsible for “the cost of funding a retirement system” and empowers the state to withhold aid if payments are not made, it does not explicitly mention expenses related to the administration of the plan. Raimondo says that “at a minimum,” the legislation should be amended to indemnify the Retirement Board from liability.
The treasurer’s final concern is that the financial standing of the Central Falls plan and the “true fiscal impact of this legislation” has not been adequately determined by actuaries. Again, she refers to “the assets to be transferred.”
In closing, Raimondo suggests that other “legislative solutions” should be explored without involving MERS. A law empowering the treasurer to withhold state aid if the city fails to make required contributions could be enacted outside of the state retirement system.