PROVIDENCE, R.I. (AP) — Amid an investigation by the U.S. Securities and Exchange Commission about the state's bond offerings, Rhode Island's retirement board on Wednesday approved a new set of assumptions that estimates the state's unfunded pension liability is 27 percent higher than previously thought.
The changes also mean that taxpayers could be on the hook for at least $156 million more in contributions to the retirement systems for teachers and state retirees in 2013 alone.
The SEC has indicated it's interested in whether states are adequately disclosing pension liabilities, and it began an investigation in January into Rhode Island's disclosure practices. It is looking at the state's bond transactions since 2007. A larger unfunded pension liability can be more risky for bond investors and hurt the state's bond rating, which makes it more expensive to borrow money for projects such as roads and bridges.
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The board of the Employees' Retirement System of Rhode Island on Wednesday voted 9-6 to approve the recommendations laid out in a report compiled by actuaries to change several assumptions it makes about the state's pensions, including lowering the expected investment return from 8.25 percent to 7.5 percent, decreasing the rate of inflation from 3 percent to 2.75 percent and increasing the life expectancy of retirees. That bumped up the unfunded pension liability by $1.4 billion to $6.8 billion.
General Treasurer Gina Raimondo, a Democrat who began a review of the state's pension assumptions shortly before the SEC investigation was announced, said the new assumptions were more accurate and in the best interest of retirees who benefit from the system.
She also acknowledged it's going to result in what she called "budgetary pressure." The state's budget deficit stands at about $331 million for the 2012 fiscal year that begins July 1.
"It's a vote to have our assumptions reflect reality, which I believe is the first step to bringing about a truly sustainable system with long-term financial integrity," Raimondo said after the meeting.
If no changes are made to the plan's provisions, such as the size of benefits or how much workers must contribute, taxpayers would have to put $156.5 million more into the system in 2013 — about $100 million of which would come from the state and the rest from cities and towns, the treasurer's office said.
Raimondo is preparing two reports on the system. One, called "Truth in Numbers," will look at the state's unfunded liability and why it is so large, she said. She expects to release it the week after next week's recess of the General Assembly, she said. She plans to then follow up that report with one that suggests several options for dealing with the crisis.
Richard Licht, Gov. Lincoln Chafee's director of administration, who is a member of the retirement board, said the Chafee administration is awaiting Raimondo's recommendations and was prepared once that happens to start discussing with lawmakers and retirees what must be done to fix the problem.
House Speaker Gordon Fox, D-Providence, said he is in talks with Raimondo about addressing escalating pension costs. He said the new numbers released Wednesday show why the effort is so important.
"It's a big number," he said. "It certainly puts more financial pressure on the on the state."
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