Report: State pension plans face growing challenges, R.I. no exception

RHODE ISLAND ranks 39th among the states for its funded ratio of its public pension plan at 29.6 percent. This measure looks at the total value of a plan's assets weighed against its accrued liabilities; the data was included in a report from the American Legislative Exchange Council and State Budget Solutions. / COURTESY ALEC/STATE BUDGET SOLUTIONS
RHODE ISLAND ranks 39th among the states for its funded ratio of its public pension plan at 29.6 percent. This measure looks at the total value of a plan's assets weighed against its accrued liabilities; the data was included in a report from the American Legislative Exchange Council and State Budget Solutions. / COURTESY ALEC/STATE BUDGET SOLUTIONS

PROVIDENCE – Nationwide, a new report says that state public employee pension plans are underfunded by nearly $5.6 trillion. At $18.6 billion, Rhode Island’s unfunded liability is one of the smallest among the 50 states, thanks to its size and fewer employed workers.

However, Rhode Island’s rank plummets to the lower half of states when looking at factors such as unfunded liabilities per capita (the personal share of liability for every resident in each state), and the funded ratio of public pension plans, or the total value of the plan’s assets weighed against its accrued liabilities.

Rhode Island ranks 32nd at $17,644 for unfunded liabilities per capita, and 39th for its funded ratio at 29.6 percent.

The figures were included in a report recently released by the Arlington, Va.-based American Legislative Council, which bills itself as a nonpartisan, voluntary membership organization of state legislators “dedicated to the principles of limited government, free markets and federalism.”
ALEC said unfunded public pension liabilities have grown approximately $900 billion since its last comprehensive report in 2014.

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ALEC, which used data from more than 280 state-run public pension plans, did not use the state plans’ assumed rates of return, as it said they “are too high and invite risk.” Instead, ALEC said its State Budget Solutions report applied a 2.344 percent rate of return based on a basket of 10- and 20-year U.S. Treasury bond yields averaged from March 2015 to March 2016. It said that’s considered a “risk-free rate.”

The state of Rhode Island assumes a rate of return of 7.5 percent, far higher than the one in the ALEC report, and pegs unfunded liabilities at $2 billion, another number far lower than the $18.6 billion that the report is using.

“The public sector’s current assumed rates of return distort how much money is needed to fund the plans today to guarantee and eventually pay out pension benefits in the future. Ultimately, this will result in broken promises to government employees and financial hardship for taxpayers,” the report states.

In the funded ratio category, Connecticut was last, with a funded ratio of 22.8 percent. First in that category is Wisconsin at 63.4 percent. Massachusetts ranks 45th at 27.7 percent.

While Rhode Island places 10th on the list for total unfunded liabilities of public pension plans, Vermont ranks the best for unfunded liabilities of $8.7 billion; New Hampshire is seventh at $17.3 billion and Maine is ninth at $17.7 billion. California is last on the list with unfunded liabilities of $956 billion (however, California’s rank improves to 21st for its 35.6 percent funded ratio), and Massachusetts ranks the lowest among New England states at 41st at $126.7 billion, while Connecticut’s $99.3 billion places it 34th.

This gauge reveals financial strain on state budgets in raw dollar terms, according to ALEC.

In the unfunded liabilities per capita category, Alaska ranks the worst at $42,950 and Tennessee ranks the best at $7,246. Here, California falls to 43rd for unfunded liabilities per capita at $24,424, and Connecticut has the lowest ranking among the New England states at 47th for $27,653.
“As this report reveals, all 50 states face alarming pension problems,” the report adds. “Given that pension payments to retired state employees are guaranteed, taxpayers are ultimately responsible for making up any funding deficit.”

For the full report, click HERE.

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