Pasquale T. D’Amico, head of the Providence Retirement Board, listens yesterday to board members discuss the cases of former Providence Police Chief Urbano Prignano Jr. and Mayor David N. Cicilline’s director of administration.

The Providence Journal / Bill Murphy

PROVIDENCE — City Internal Auditor James J. Lombardi III is investigating the purchase of pension credit for time served in the military and for prior municipal service by former Administration Director John C. Simmons and other employees.

City officials appear to be misapplying the law as well as incorrectly calculating the cost charged to Simmons and others to purchase credits, to the detriment of the woefully underfinanced city pension fund, Lombardi said.

He disclosed his inquiry yesterday at a meeting of the city Retirement Board at City Hall.

If Lombardi’s concerns bear out and others in city government go along, Simmons and other employees could be billed for more money than they paid when they initially bought their credits. And if Simmons’ purchase of credit for military service time is disallowed, it could reduce his annual pension by thousands of dollars.

At the end of last month, Simmons retired from his $160,837-a-year post as director of administration for Mayor David N. Cicilline in order to succeed Gary Sasse as executive director of the Rhode Island Public Expenditure Council. The fiscal condition of state and municipal pension funds is one of the abiding interests of RIPEC, a public policy think tank bankrolled by the business community.

Simmons has not yet applied for his municipal pension, which, if left undisturbed, is expected to be worth about $110,000 a year. He did not return a call seeking comment.

At issue are concepts not widely understood by the public. Many public-sector pension funds allow an employee to boost his or her eventual pension by augmenting the number of years of service on which the pension is based. There generally are two categories in which to do it: By adding credit for time served in the U.S. military or for separate time served in state or local government.

“That’s a tremendous benefit, that people can buy back time,” Lombardi commented.

In Providence, an employee may acquire credit for an earlier stint spent in city employ, as well as military service, and that is what Simmons did. He was director of administration for former Mayor Joseph R. Paolino Jr. and left city employ in 1991. When he departed, he withdrew from the pension fund the required contributions he had made toward a possible pension.

After rejoining city government under Cicilline, public records show that in 2004 Simmons paid $112,883 into the pension fund to obtain 5 years, 11 months and 15 days’ credit for his prior municipal service and 2 years, 11 months and 10 days’ credit for his service in the Army.

Adding that time to his 4½ years-plus service for Cicilline means that Simmons was able to compile more than the necessary minimum of 10 years’ total service to be eligible to receive a municipal pension.

In purchasing the credit, as spelled out in city ordinance, Simmons was obliged to follow two different formulas. To gain the credit for prior municipal service, he had to restore the employee contributions he had withdrawn for his time with Paolino and pay 8 percent interest compounded annually on that sum for the time elapsed since he first left the pension system.

To gain the credit for military service, Simmons had to pay a sum equal to 10 percent of his compensation for his first year back in city employ, times the number of years spent in the military.

Lombardi’s concerns focus on two considerations: The cutoff date for an employee to purchase military credit time and the basis for the calculation of the sum that an employee must pay to gain credit for military service or prior municipal service.

Lombardi, who is a lawyer as well as a certified public accountant, said it appears to him that city ordinance requires an employee to buy military service credit no later than the employee’s seven-year anniversary as a member of the pension system. At first blush, Lombardi said, it seems that Simmons missed the deadline but was allowed to buy military service credit nevertheless.

He also said that his calculation of the sum Simmons should have paid for his prior city service credit is thousands of dollars higher than the sum the city actually charged to Simmons. He said he will delve into the reason for the discrepancy, which may have something to do with the period of time for which Simmons was charged interest.

If his arithmetic is correct, he said, Simmons should be billed for the difference.

The Retirement Board yesterday turned away an attempt by one of its members, Fire Department Capt. James L. Potenza, to have Lombardi make a presentation to the board regarding the benefits Simmons has received or may receive as a result of leaving city government a second time and the broader issues the Simmons case represents for the pension system.

Potenza agreed to wait until another meeting in order to allow the board members a chance to study the matter.

For years Lombardi has campaigned to reform the municipal pension system, including tightening eligibility standards, limiting benefits and generally improving its administration. The latter would involve improved policing of the purchase of service credits and restrictions on loans to employees from the fund, among other issues.

The city is saddled with a mammoth unfunded liability of $674.6 million in the pension fund, which means that its projected assets fall short of meeting its projected obligations by that amount.

Cicilline has proposed floating a pension obligation bond, which would plug the financing gap in the pension fund and leave it sound on an actuarial basis. In effect, the city would exchange one debt for another kind of debt.

If a pension obligation bond is not structured prudently and the fund is not managed correctly, however, a government can wind up paying more with the bond than without one.

gsmith@projo.com