East Providence, RI Enters Interlocal Trust To Help Meet OPEB RequirementsCategories: New England Developments,OPEB/GASB 45/75,PARS In the News
East Bay RI by Mike Rego, June 26, 2015
East Providence will soon join a small but hopefully growing list of municipalities in the Rhode Island Interlocal Risk Management Trust, a funding mechanism designed to help cities and towns maintain their OPEB requirements going forward.
At a recent meeting, the Council unanimously gave Acting City Manager Paul Lemont and Finance Director Malcolm Moore the ability to enjoin East Providence with the trust, which is set up to fund post-employment benefits for the employees as specified by policy or collective bargaining agreements.
East Providence will deposit an initial $5.3 million into the trust, a sum accrued over the previous two fiscal years. Mr. Moore said he expects the city to add another significant amount to the trust once the current FY2015 concludes. So-called “turn-key” ready, the city can enter the trust upon filling out the proper paperwork, a process which should only take a few weeks.
Ian Ridlon, representing the Interlocal Trust, and Maureen Toal, of the state Public Agency Retirement Services (PARS) division, made a detailed presentation about the plan at the aforementioned Council meeting. The investment firm Vanguard manages the trust.
Mr. Ridlon explained the trust pools the assets of municipalities, allowing to “keep costs down” for those involved.
Importantly, he added, there are “no shared liabilities,” meaning each city and town is responsible and maintains control of its own monies.
The city can also determine in which funds it wishes to place its money. Akin to any retirement plan, it can be as aggressive or conservative with its investments.
And East Providence, if it wishes, can withdraw its share following just a written notice of 30 days. As well, there are no termination or distribution fees.
“This is not a state run program,” Mr. Ridlon emphasized. “Municipalities are still in control.”
While to date being one of the few cities or towns to take advantage of the trust implemented by the General Assembly last year, East Providence is also one of the few communities currently fully funding its OPEB (Other Post-Employment Benefits) requirements. Cities and towns in Rhode Island face some $3.1 billion in unfunded pension liabilities. Despite its entry into the trust East Providences remains 10s of millions in arrears to its overall pension responsibility.
By joining the trust, however, the city not only benefits from having its investment grow, but it can also treat the trust monies as an asset, Ms. Toal said. She noted it will continue to help the city’s improving bond rating with the credit agencies. And any fees associated with the trust will decrease the more money the city puts in and earns.
Additionally, the trust allows East Providence to meet the federally mandated GASB 45, a reporting requirement for municipalities used to measure and report the liabilities associated with their OPEB.
In a follow-up discussion held in Mr. Lemont’s City Hall office, he, Mr. Moore and state-appointed Municipal Finance Advisor Paul Luba talked about East Providence’s involvement in the trust in greater detail.
“This is just another sign that things are being run properly in the city, that East Providence is moving forward in the right direction,” Mr. Lemont said.
The manager noted municipalities are not required to fund OPEB packages by statute, but “sending it down the road can burn you” like it has in the past in East Providence. Until FY2013, the city funded neither its OPEB or ARC (Annual Retirement Contribution) fully since Mr. Lemont was previously manager back in the early 2000s.
He said it’s “easy” for administrators and politicians to say or even budget OPEB contributions, but that it’s just as easy not to fund it when push comes to shove. Entering the trust puts East Providence “far ahead, light years ahead of other communities” when it comes to keeping retirement liabilities current.
From the Finance perspective, Director Moore is pleased with the city’s ability to determine how the funds are invested. East Providence administrators have three choices, really — very conservative, moderate and growth. He called it a “no-brainer” to put the city’s trust monies into the “growth” sector.
The Interlocal Trust has a committee made up of it members. Mr. Lemont said Mr. Moore will serve as East Providence’s representative.
Mr. Luba, who has been in his current position for nearly two years since the Budget Commission formally departed back in the fall of 2013, was just as enthusiastic about the prospects the trust holds for all parties.
“This is a very good program for the city and for the employees. The trust does a very good job. And like Paul said, it puts East Providence in a position far ahead of other municipalities in terms of meeting its post-employment contributions,” Mr. Luba added. “And this is also good for the employees. They know where the money is going. It should give them a sense of security, knowing the city is making its contributions. And then there are the benefits to the city, like with the ratings agencies. It really is good for everyone involved.”