A new proposal from Rhode Island General Treasurer Seth Magaziner aims to strengthen underperforming municipal pension plans.
The Healthy Local Pensions Plan (HELP) would make it easier to enroll the troubled pensions into the state’s Municipal Employees’ Retirement System (MERS).
As it stands, 116 pension plans are run by the state and are performing at healthy levels. These state-run pensions enjoy an average funding status of 83 percent, but there are another 34 locally run municipal pensions funded below 60 percent.
Magaziner says if allowed to join, the underfunded pension plans would benefit from lower overhead costs and fees. The municipalities would also benefit from having access to a wider pool of administrative staff like lawyers and actuaries.
“What we are centralizing is the management of the investments, the management of the administration, and helping communities get lower costs and stronger performance on their investments through economies of scale,” said Magaziner.
Under Magaziner’s proposal, the underperforming pensions would still be responsible for covering their costs and healthy pensions already in MERS wouldn’t be negatively affected. He says some municipalities have expressed interest in joining MERS, but current rules keep them out.
“Right now the rules that govern how a municipal plan enters the state system are very rigid, and in some cases very costly to the communities, so we’re trying to lower some of these financial barriers,” said Magaziner.
The largest barrier to enter the state system is a rule that requires municipal pensions be paid off over the span of 20 years. The proposal would ease that rule, allowing municipalities to make these payments over 25 years and work their way to meeting the state requirements.
Magaziner says no municipality would be forced to join HELP.
