Municipalities try to throw off pension plans

By Cate Long
May 23, 2013

Two California cities, Pacific Grove and Canyon Lake, are trying to end their participation in CalPERS – the statewide public pension plan. The communities are unable to bear the cost increases in their retirement systems, which they are unable to control today. Now we hear news of another community and a non-profit group on the other side of the country that are trying to untangle themselves from established pension plans.

Ted Nesi, reporting for WPRI, details Coventry, Rhode Island officials who are trying to walk away from a non-teacher school worker pension plan:

Elected officials in Coventry have taken an apparently unprecedented step by washing their hands of responsibility for one of their employee pension plans, saying taxpayers have no obligation to come up with enough money to stop it from running out of cash within 12 years.

The decision about retirement funding for the town’s 349 non-teacher school workers and retirees has shocked members of a state commission tasked with overseeing local pension plans, and they’ve summoned Coventry leaders to a special meeting in Providence next week to defend it.

How much money is involved? (emphasis mine)

The pension plan for Coventry schools’ support personnel was created in 1977 by the School Committee and the town teachers’ union. It has less than $11 million in assets to cover a $35 million liability and is on track to run out of money to pay retirees by 2025, according to actuarial projections.

The pension plan paid retirees nearly $1.4 million in benefits in 2011-12, and the tab is set to double over the next decade. The School Committee contributed $600,630 to the plan that year, far less than the $2.4 million its actuary said was required. Eligible employees put 8 percent of their paychecks in, for a total of $364,300 in 2011-12.

A Kentucky pension consultant Chris Tobe pointed me to a story about the non-profit group, Seven Counties, which was a member of the state Kentucky Retirement System, but declared bankruptcy in an effort to escape from the plan. The Courier-Journal reports:

Seven Counties, Louisville’s community mental health center, filed for bankruptcy protection in April, seeking relief from escalating pension costs that center officials say could drive the group into financial ruin within 18 months.

The bankruptcy case of Seven Counties Services will — at least initially — hinge on whether the group qualifies as a governmental agency and how it might affect the state pension system if allowed to leave, attorneys indicated Tuesday.

Tobe says that over 30 percent of the Kentucky Retirement System liabilities are related to non-governmental groups that include a credit union and an insurance company. The Kentucky state plan is the worst-funded state plan in the country (worse than any single Illinois plan) at 27 percent. So it’s no wonder that a non-profit agency is trying to escape the state plan.

These are just a handful of stories, but I imagine that more are brewing as public officials with weak pension systems seek ways to escape their fiscal burdens. Stay tuned.

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/