Riley: Major Rhode Island Pension Funds Lag Market Once Again

Tuesday, April 18, 2017
Michael G. Riley, GoLocalProv MINDSETTERâ„¢

The Trump rally tail winds continue to push asset valuations higher for all investors in the first quarter of 2017.

Unfortunately for taxpayers, once again the State of Rhode Island and its 56% funded pension plan and Providence, Rhode Island's 21% funded plan are both badly lagging the market.

Providence's first quarter result is shown in two ways, because of Providence Mayor Jorge Elorza’s unique and misleading reporting of both Pension assets and returns.

Providence returned 2.3% according to Wainwright Investment Counsel LLC on $286,000,000. But that return is only 1.97% when measured on Providence's stated assets of $334 million. Providence remains the only city in the country with such significant differences in Stated assets vs managed assets and I believe the Mayor is deliberately misleading bond investors by using this misleading accounting of their pension plan.

The Future is Bleak

As both the state of Rhode Island's - and Providence's - pension debt problem continues to worsen, we should expect far worse ratings from the rating agencies in coming years.

This will happen especially if the country should have our first recession in 8 years.  There is no apparent reason to expect our pension managers to suddenly outperform the markets or to expect our political leaders to enact real pension reform that they have avoided during the good times. Therefore, I predict a complete municipal meltdown soon. That means higher taxes and reduced services for Rhode Island citizens.

Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC.   

  • 2005-2010

    In the five years before Raimondo was elected, pension changes included a decrease in established retirement age from 65 to 62, increased eligibility to retire, and modified COLA adjustments.
     
    Read the Senate Fiscal Office's Brief here.
     
    (Photo: 401(k) 2013, Flickr)
     
  • January 2009

    Governor Don Carcieri makes pension reform a top priority in his emergency budget plan. His three-point plan included:

    1. An established minimum retirment age of 59 for all state and municipal employees.

    2. Elimination of cost-of-living increases.

    3. Conversion of new hires into a 401(k) style plan.

     

    See WPRI's coverage of Carcieri's proposal here.

     
  • 2009

    Rhode Island increased mandatory employee contributions for new and current employees. New Mexico was the only other state to mandate current employees to increase their contributions. 

     

    Read the NCSL report here

    (Photo: FutUndBeidl, Flickr)

     
  • 2010

    Rhode Island's state administered public employee pension system only held 48% of the assets to cover future payments to its emplyees.

    "This system as designed today is fundamentally unsustainable, and it is in your best interest to fix it" - Gina Raimondo

     

    Check out Wall Street Journal's coverage here.

     
  • November 2010

    Gina Raimondo defeats opponent Kernan King in the election for General Treasurer of Rhode Island using her platform to reform the structure of Rhode Island's public employee pension system. She received 201,625 votes, more than any other politician on the 2010 Rhode Island ballot. 

     
  • April 2011

    Raimondo leads effort to reduce the state’s assumed rate of return on pension investments from 8.25 to 7.5%.

    Her proposal includes plans to suspend the Cost of Living Adjustment (which allows for raises corresponding with rates of inflation for retirees), changing the retirement age to match Social Security ages, and adding a defined contribution plan.

     
  • May 2011

    Raimondo releases “Truth in Numbers”, a report detailing the pension crisis and offering possible solutions. She continues to work to raise public support for her proposal.

    "Decades of ignoring actuarial assumptions led to lower taxpayer & employee contributions being made into the system." - Gina Raimondo (Truth in Numbers)

     

    Read GoLocalProv's analysis of the report here.

    Read the Truth in Numbers report here

     
  • October 2011

    Governor Lincoln Chafee and General Treasurer Gina Raimondo present their pension reform legislation proposal before a joint session of the General Assembly.

    “Our fundamental goal throughout this process has been to provide retirement security through reforms that are fair to the three main interested parties: retirees, current employees and the taxpayer…I join the General Treasurer in urging the General Assembly to take decisive action and adopt these reforms.”- Gov. Lincoln Chafee

     
  • October 2011

    Head of Rhode Island firefighters’ union accuses Raimondo of “cooking the books” to create a pension problem where one did not exist. Paul Valletta Jr. states that Raimondo raised Rhode Islanders’ assumed mortality rate to increase liability to the state, using data from 1994 instead of updated information from 2008, and lowered the anticipated rate of return on state investments.

    “You’re going after the retirees! In this economic time, how could you possibly take a pension away?” Paul Valletta Jr (Head of RI Firefighters' Union)

    Read more from the firefighters' battle with Raimondo here.

    Check out the New York Times' take on RI's  pension crisis here.

     
  • November 17, 2011

    The Rhode Island Retirement Security Act (RIRSA) is enacted by the General Assembly with bipartisan support in both chambers. RIRSA’s passing is slated to reduce the unfunded liability of RI’s pension system and increase its funding status by $3 billion and 60% respectively, level contributions to the pension system by taxpayers, save municipalities $100 million through lessened contributions to teacher and MERS pension systems, and lower the cost of borrowing.

     

    Read more from GoLocalProv here.

     
  • November 18, 2011

    Governor Lincoln Chafee signs RIRSA into law. According to a December 2011 Brown University poll, 60% of Rhode Island residents support the reform. Following its enactment, Raimondo holds regional sessions to educate public employees on the effects of the legislation on their retirement benefits.

     

    Read about how Rhode Islanders react to RIRSA here.

     
  • January 2012

    Raimondo hosts local workshops to explain the pension reforms across Rhode Island. She also receives national attention for her contributions to the state’s pension reforms.  The reforms are given praise and many believe Rhode Island will serve as a template for other States’ future pension reforms.

     

    Read about the pension workshop here.

    Read Raimondo's feature in Institutional Investor here

     
  • March - April 2012

    Raimondo opposes Governor Chafee’s proposal to cut pension-funded deposits. She continued to provide workshops on the pension reforms.

    “The present law is sound fiscal policy and should remain unchanged.” -George Nee (Rhode Island AFL-CIO President)
     
     
    See WPRI's coverage of Chafee's attempt to cut pension fund deposits here.
     
  • December 5, 2012

    Raimondo publicly opposes Governor Chafee’s meetings with union leaders in an effort to avoid judicial rulings on the pension reform package.  In response, Chafee issues a statement supporting the negotiations.

     

    Read more about Raimondo's opposition here.

    Read about Chafee's statement http://www.golocalprov.com/news/new-chafee-issues-statement-supporting-pension-negotiations/">here

     
  • March 2013

    Led by the Rhode Island State Association of Fire Fighters, unions protest the 2011 pension reform outside of the Omni Providence where Governor Lincoln Chafee and General Treasurer Gina Raimondo conduct a national conference of bond investors.

     

    Read about Raimondo's discussion of distressed municipalities here

     
  • April 2013

    The pension plan comes under increased scrutiny as a result of the involvement of hedge funds and private equity firms. Reports show that $200 million of the state pension fund was lost in 2012.

    "In short, impressive educational credentials and limited knowledge of investment industry realities made Raimondo ideally suited to champion private equity’s public pension money grab." - Ted Seidle (Forbes)

     

    Read GoLocalProv's coverage of the State Pension Fund's losses here

    Read Ted Seidle's criticism of Raimondo in Forbes.

     
  • June 2013

    Reports show that the State’s retirement system increased in 2013 by $20 million despite the reforms being put into effect the previous year.

     

    Read GoLocalProv's investigation into the rising pension costs here.

     
  • September 2013

    Matt Taibbi publishes an article in Rolling Stone detailing Raimondo’s use of hedge funds as a questionably ethical tool to aid with pension reform. 

    Read Taibbi's article in Rolling Stone.

    Read GoLocalProv's response to Taibbi here.

     
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