01:00 AM EDT on Thursday, June 8, 2006

BY BENJAMIN N. GEDAN
Journal Staff Writer

WEST WARWICK -- The Town Council has made inadequate contributions to the pension fund for eight straight years and repeatedly disregarded a state law requiring that it formulate a strategy for meeting its mounting pension obligations.

The last time the town met its actuary's recommendation was in 1998, when the fund contained 97 percent of the money needed to guarantee monthly payments to current and future retirees.

In recent years, the town has shifted spending to other priorities, even as increases in employees' salaries and life expectancy have helped balloon the projected pension obligations. There are 589 members of the town's defined-benefit plan, including police officers, firefighters and other municipal employees.

The fund has lost $11.7 million in value since 2000, increasing the unfunded liability from $5.6 million to $43.8 million and dropping the funded ratio to 48 percent. In fiscal 2005, the pension fund lost $542,585, paying out more money to retirees than it generated in investment income, employee contributions and the town allocation.

"The investments for West Warwick are fine. They've got a well-managed portfolio and a good investment consultant in place," said Althea A. Schwartz, the town's actuary at Milliman Consultants. "The problems are they are not necessarily putting the money in [that] they should."

Schwartz declined to elaborate on the performance of the investments or provide comparisons between West Warwick and the other 20 cities and towns that oversee independent pension funds, citing instructions from the Pension Board's lawyer, Joseph Pezza.

From 2000 to 2003, Stephen D. Alves, a Democratic state senator and the chairman of the influential Senate Finance Committee, headed the town's Pension Board. He was replaced by Geoffrey E. Rousselle, a former Town Council president, who was reappointed by the Town Council last month.

"It's a very bad pattern of very low contributions," state Auditor General Ernest A. Almonte said in an interview. "They're not even making the minimum payment on the credit card."

Town officials have only recently begun to acknowledge the problem, which dates back to at least the late 1980s, spanning both Democratic and Republican-dominated councils.

The current fiscal year was the first since at least 1989 in which the town contributed more than $1 million to the fund. Last month, voters at the Financial Town Meeting approved a budget that allocates $2 million to the fund for the fiscal year that begins July 1.

"At least we're addressing it," council President John J. Flynn said yesterday. "We've started moving toward the priority."

Flynn said he was scheduling a summit on the issue with state experts, adding that town officials are studying the problem.

The Pension Board is also moving to reduce the growing unfunded liability in the system. Last October, the board began scrutinizing disabled municipal retirees in an effort to identify fraud. It required disability pensioners to submit annual reports on their employment status and to undergo physical exams administered by a board-approved doctor.

That effort is not expected to result in major savings, however. And though the town's recent contributions dwarf previous attempts to reduce the unfunded liability, they total about half what the actuary recommended. With a double-digit increase in the property-tax rate being projected for fiscal 2008, there is no indication future contributions will not plummet again.

If the town had met the actuary's recommendation for this fiscal year, Flynn said, the tax increase would have doubled.

"That's the thing you should worry about as a taxpayer," Almonte said. "It's putting off the debt to future generations."

Since 2000, state law has required municipalities that fail to meet their actuary's recommendations to submit a payment plan to the auditor general describing remedies for the ailing pension fund. Despite several requests from Almonte, the Town of West Warwick has never had a plan approved, submitting only short documents pledging improvement, Almonte said. (The law, 45-10-15, carries no penalties.)

What the town has promised Almonte, moreover, it has frequently failed to deliver.

In a letter in March of last year, Finance Director Malcolm A. Moore told Almonte that the town planned to meet the actuary's recommendation for fiscal 2007 and change the pension structure for all three unions after their contracts expire in June 2005.

Under the police officers' contract approved last September officers pay 8 percent of their salary into the pension fund, up from 6 1/2 percent. But their pension benefits are unchanged, and the firefighters' contract ratified in August includes neither higher contributions nor lower retirement payments, Moore said in an interview. The town is still negotiating a new contract with municipal workers.

"It's a balancing act," Town Council Vice President Edward A. Giroux said recently. "It's a long-term problem and [voters] don't feel it."

Eventually, the pension problems will be felt by townspeople, Almonte said. Already, the fund's condition has raised alarms among the town's auditors at the Warwick accounting firm Parmelee, Poirier & Associates.

In its management-letter comments accompanying last year's annual audit report, the firm noted the town's failure to meet its actuary's recommendation, and it cited the law requiring that a strategy be developed and a report filed with Almonte.

"Large and uncontained pension debt," the report said, "can seriously jeopardize the financial future of a community and its plans for economic development."