Rhode Island return-assumption cut boosts liabilities

Rhode Island's unfunded public pension liabilities for teachers and most state workers jumped about 26% after the board overseeing the retirement system voted to cut the assumed rate of return.

The Rhode Island Employees' Retirement System, Providence, lacks about $6.83 billion to meet projected needs, up from about $5.4 billion before the system on Wednesday cut annualized return expectations to 7.5% from 8.25%, according to state Treasurer Gina Raimondo. The system had $6.9 billion in defined benefit assets as of Sept. 30, according to Pensions & Investments data.

“It's a big deal,” said Ms. Raimondo, who heads the retirement system and voted for the change. “I believe it was the right thing to do.”

The move may increase the fiscal 2013 obligation to the system by state taxpayers to $622 million, up 33% from previous projections, Ms. Raimondo said. The system's funding ratio fell to about 48% from 54%.

The system's “current real rate-of-return assumption is not justified by asset allocation and forward-looking expected returns by asset class,” consultants from Gabriel Roeder Smith said in a report that recommended cutting the projections.

The nominal rate adopted Wednesday includes 5.15% on invested assets net of expenses and 2.75% for inflation, as recommended by Gabriel Roeder Smith.

The SEC is probing Rhode Island bond offerings, possibly over disclosure of the state's pension liabilities, Ms. Raimondo said in February when the investigation was made public. The state included information about pensions in statements connected with securities sales.