November 27, 2014
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Actuarial reports show leveling of police, fire pension payments

While the cost of financing one of the city’s three public safety pension plans will continue to burden taxpayers, actions taken by the administration and the police and fire unions will serve to level out municipal contributions, avoiding what would have otherwise been dramatic spikes in the years ahead.

Mayor Scott Avedisian released the information last week as actuarial reports of the three plans prepared by Gabriel Roeder Smith & Company were distributed to the City Council.

Avedisian said the plans continue to trend in a positive direction, highlighting, in particular, Firefighters/Police I Pension Fund.

The plan falls far under the 80 percent funded threshold considered the goal by the state pension reform act and does not meet the requirement of a 30-year funding schedule. As of July 1, 2013, the plan was 22.3 percent funded, as compared to 20.3 percent in the preceding valuation.

The City Council and mayor recognized that the plan represented a serious liability in 1995 and adopted a 40-year amortization of unfunded liability that it has faithfully followed since then. Since the city is close to reaching the halfway point of the plan, to convert to a 30-year amortization schedule now would result in an overall increase in city payments.

“We’ve got a funding formula that’s working, we’re not going to do that [adopt a 30-year plan],” the mayor said.

By not deviating from the payment schedule and adding payments to the projected overall payment, like increasing principal payments to a mortgage, the administration has been able to level off costs going forward.

“We’re going to see consistent funding from the city,” the mayor said.

Currently, the city is paying $27.3 million into the three plans. This will continue to climb, but won’t spike upward as actuaries projected. The unions and reforms to the plans have played major roles in leveling city costs.

In establishing a payment schedule, actuaries assumed municipal employees would receive annual 3.5 percent raises. Since cost-of-living adjustments to police and fire retirees is linked to the salaries of active members, the city experiences an increase in costs with each pay raise. All three municipal unions agreed to no salary increase contracts two years ago.

This enabled the administration to accelerate $5 million of the amortization of Police/Fire I plan. As for the Police II and Fire II, pension reforms that took effect July 1, 2012 serve to likewise level costs.

“The goal has been to stabilize the plans … we’re on very stable ground,” Avedisian said.

This week the mayor announced the city received $394,569 from the state for its participation in the FY14 Municipal Incentive Aid program. Municipalities are eligible for FY14 funding if they have no locally-administered pension plan, or if they submitted a Funding Improvement Plan (FIP) to the state Department of Revenue and the FIP was approved, or they have locally-administered pension plans but no FIP was required. Warwick’s 40-year funding plan for its one critical pension plan, Police/Fire I, has been approved by the state; its remaining three – Fire II, Police II, and Municipal – are all described by the state as well-performing. 

All the actions taken do not achieve level funding of the plans.

Costs will increase, especially in Police/Fire I. As employees retire, they cease making payments and start receiving benefits. Costs are also projected to increase for Police II and Fire II, with city contributions going from $14.8 million annually to $18.6 million in the next five years.

As of last July, Fire II is 83.4 percent funded as compared to 78 percent in the preceding valuation. In Police II, the funded ratio dropped from 86.5 percent to 81 percent for the period.

 


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