Auditor General releases results of Fiscal 2019 Employees’ Retirement System of the State of Rhode Island audit
STATE HOUSE — Net position of the Employees’ Retirement System of the State of Rhode Island (the Retirement System) increased by $344 million during fiscal 2019 to $9.6 billion at June 30, 2019.
The financial statements of the retirement system for the fiscal year ended June 30, 2019, and the independent auditor’s report thereon are included in an audit report issued by Auditor General Dennis E. Hoyle and released today by the Joint Committee on Legislative Services. The auditors concluded that the financial statements of the Retirement System present fairly, in all material respects, the fiduciary net position of the plans as of June 30, 2019, and the changes in fiduciary net position for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The audit encompassed (1) the seven defined benefit pension plans administered by the Retirement System — i.e., separate plans for state employees and teachers, the teachers’ survivors benefit program, two plans covering state police, two plans covering judges, and participating municipal employees, and (2) the defined contribution plan. The defined benefit plans covered more than 70,000 members (more than 37,000 of these members also participated in the defined contribution plan).
The time weighted rate of return during the fiscal year was 6.54% (compared to 8.03% during the prior fiscal year), and net investment income was $532 million (compared to a net investment income of $633 million during fiscal year 2018). The system reported total investment expenses of $84.2 million for fiscal 2019.
Benefits paid to retirees and beneficiaries from the defined benefit plans during fiscal 2019 totaled $963 million, and distributions from the defined contribution plan totaled $19.6 million. Employee and employer contributions totaled more than $625.5 million to all the defined benefit plans. Employee and employer contributions totaled $125.9 million to the defined contribution plan.
Amounts accumulated in the defined contribution plan totaled $1 billion at June 30, 2019. Most defined contribution plan assets (90%) are held in target date retirement fund investments.
The accounting measures of the net pension liability (GASB Statement No. 67) used for financial reporting differ from the measures used to determine actuarially determined contribution amounts for funding purposes. Employers participating in the System’s plans report the net pension liability (asset), or their proportionate share, on their government-wide financial statements as required by GASB Statement No. 68 - Accounting and Financial Reporting for Pensions.
Each plan’s fiduciary net position as a percentage of the total pension liability is shown below:
ERS – State employees 52.8%
ERS – teachers 54.6%
Teachers’ Survivors Benefits 150.2%
SPRBT– State police 83.1%
JRBT – Judges 95.7%
RIJRFT – Judges 4.7%
SPRFT – State Police 9.3%
MERS – general employees 80.0%
MERS – police and fire 77.7%
The Teachers’ Survivors Benefit Plan (TSB) has a net pension asset since plan net position exceeds the total pension liability.
The pension liability for all plans except the RIJRFT was determined using the system’s investment return assumption of 7%. The RIJRFT used a municipal bond index rate of 3.13%.
Consistent with the GASB 67 accounting requirements, the system’s fiscal 2019 financial statements include disclosures and required supplementary information related to the money-weighted return on investments for each plan, the components of the change in the net pension liability (asset), and the sensitivity of the determination of the net pension liability (asset) by a change in investment return assumption of +1/-1%. The real return assumption for each asset class within the pooled investment trust is disclosed as support for the system’s overall investment return assumption of 7%.
During fiscal 2019, participating employers in the plans administered by the system made 100% of the required actuarially determined contributions except for the RIJRFT plan covering 7 judges. The state is not contributing on an advance funded basis to the RIJRFT plan. The auditors highlighted that plan net position represents only 4.7% of the total pension liability and additional employer contributions will be required to provide benefits to plan members.
The auditors reported that the system needs to enhance the precision over the distribution of investment income and expense to each of the defined benefit plans with investments in the pooled investment trust. Additionally, the system should formalize its procedures for the reporting of investment income and expenses and integrate those processes into the oversight of the systems’ Chief Financial Officer.
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