Fire Fighters Sue Providence After GoLocal's Riley Unveils Missing $60 Million
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Fire Fighters Sue Providence After GoLocal's Riley Unveils Missing $60 Million
IAFF Local 799 today announced the intention to file a lawsuit against the City of Providence regarding use of a decades-old accounting process that does not correctly represent the funds available in the City’s pension system. This accounting flaw was unveiled by GoLocalProv's MINDSETTER™ Mike Riley who unveiled the missing funds in the pension system in GoLocalProv last October. Riley has written repeatedly about the implications to the City's pension fund and the potential long-term impact on the City's budget. Riley's investigation may lead to an SEC probe.
The lawsuit filed by the Fire Fighter's Union will seek to force Providence to make a $60 million ARC payment into the pension system immediately, as they had reported in previous audits.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST“The past accounting practice, only recently rectified by the city’s auditor, does not accurately represent the city’s yearly required contribution to the fund,” said Paul Doughty, President of Local 799. “Our concern is that this practice dates back farther than we originally understood when the issue came to light, and that our members may suffer – or may have already suffered – a loss because of this unorthodox and potentially illegal practice. Further the city may have mislead investors over that time period. On behalf of our members, the emergency responders who dutifully protect city residents, we want the court to order the city to properly fund the pension system, and make the ARC payment in the fiscal year it is appropriated."
“As I’ve said in the past – it is easy for politicians to play loose and fast with the ARC payment, quietly borrowing millions of dollars, required and promised to city workers, by not paying their annual required contributions. We worked hard, in the very recent past, to step in and negotiate reasonable reforms to the city pension system – but this causes significant concern. We want to be sure that the sacrifices we made were truly made in good faith and comply with all applicable laws and regulation.
Providence Pension Liability
Unfunded Liability in 2013
Total Liability: $1.2 billion
Actuarial Assets: $380.4 million
Unfunded Liability: $831.5 million
Unfunded Liability in 2011
Total Liability: $1.2 billion
Actuarial Assets: $380.4 million
Unfunded Liability: $831.5 million
Percent Funded in 2013
Funding Ratio: The ratio of the amount of actuarial assets to the amount owed.
Funding ratio in 2013: 31.39%
Percent unfunded in 2013: 68.61%
Percent Funded in 2011
Funding Ratio: The ratio of the amount of actuarial assets to the amount owed.
Funding ratio in 2011: 31.94%
Percent unfunded in 2011: 68.06%
Rate of Return
Former Assumed Rate of Return: 8.5%
New Assumed Rate of Return: 8.25%
What the state’s assumed rate of return is: 7.5%
What Moody’s Investors Service says the assumed rate of return should be: 5.5%
What investor Warren Buffet says the assumed rate of return should be: 6%
Actual Return on Investment
Actual Market Return in FY 2012: 1.49%
Actual Market Return in FY 2013: 11.35%
Current Assumed Rate of Return: 6.42%
Average Market Rate of Return for FY 12 and FY 13: 8.25%
Impact of Lower Rates of Return
$72 million:The city unfunded liability increased by this amount when the city lowered its assumed rate of return by a quarter of a percentage point, from 8.5% to 8.25%
$506.2 million: The estimated increase in the unfunded liability were the city to use the 6% assumed rate of return recommended by Moody’s Investors Service.
Retiree Pay – Fire and Police
Number on Active Duty: 834
Average Annual Pay: $61,325
Number of Retirees: 587
Average Retiree Age: 65.3
Average Retiree Annual Pay: $40,512
Disability Pensions – Fire and Police
Number on Disability: 418
Average Age: 64.8
Average Annual Pay: $59,028
Retiree Pay – Other City Workers
Number of City Workers: 2,164
Average Annual Pay: $38,687
Number of Retirees: 1,453
Average Retiree Age: 72
Average Retiree Annual Pay: $18,252
Disability Pensions – Other City Workers
Number on Disability: 88
Average Age: 66.8
Average Annual Pay: $18,684
Current Cost of Pension Fund
For 2013
City Contribution: $58.1 million
Employees Contribution: $10.9 million
Net Investment Return: $18.1 million
Cost of Retiree Benefits: $95.4 million
Note: Net investment return is the return on investments after investment and administrative fees have been paid.
Cost of Pension Fund in 10 Years
Normal Cost: $9.8 million
Additional Cost Because
of Unfunded Liability: $84 million
Total Annual Cost: $94.3 million
Note: Total figure for the year includes a small second payment for the deferred liability.
Cost of Pension Fund in 20 Years
Normal Cost: $13.9 million
Additional Cost Because
of Unfunded Liability: $118.5 million
Total Cost: $132.4 million
Paying Off Unfunded Liability
Average annual increase: 3.5%
Number of additional years to pay off: 27
Fiscal year unfunded liability to be paid off by: 2040
