Consultant’s hired by General Treasurer Gina Raimondo will present their findings to the state retirement board today (report here – PDF). Their findings are grim if unsurprising, as reported by the ProJo. There are some basic structural problems:

The state pension system is based on three basic sources of funding: employee contributions, employer contributions and the volatile stock market. Because the employee contributions have been locked in place at 8.75 percent of pay for state employees, and 9.5 percent for teachers since 1995, taxpayers have been required to pay more and more each year….
The state adopted the 8.25-percent assumed rate of return on its investments in 1998, over the strenuous objections of then-Treasurer Nancy Mayer, who denounced the move as “amazingly irresponsible” in a volatile economy.
The actual market return averaged 2.47 percent over the 10 years that ended on June 30, 2010.

Assuming 8.5% annual return: mistake. The result:

[T]he gap between promises made and money available to pay for them is at least $1.4 billion bigger than previously believed.
• The required taxpayer contribution toward state employee pensions would shoot from 26.55 percent of payroll to 36.34 percent which, in dollars, would mean the difference between $182.5 million, with no change in assumptions, and $246 million.
• State and local contributions to teacher pensions would increase, at the same time, from 26.21 percent of payroll ($282.8 million) to 35.25 percent ($375.3 million).
At those levels, the required taxpayer contributions would be more than $100 million higher, within a year, than the $358.7 million that Governor Chafee anticipated…

Here are their recommendations (from the report):

1. Decrease the price inflation assumption from 3.00% to 2.75% per year.
2. Decrease the assumed net real return on investments from 5.25% to 4.75% per year. Combined with #1 decreases the nominal assumed investment rate of return from 8.25% to 7.50%.
3. Based on #1, change the COLA assumption from 2.50% to 2.35% for Schedule B retirees.
4. Modify the service-related components of the salary increase rates for both state employees and teachers; also change the wage inflation assumption from 4.50% to 4.00%.
5. Decrease the payroll growth rate from 4.25% to 3.75% for both state employees and teachers.
6. Improve the mortality assumption for active, and retired members, including the addition of
an assumption for ongoing future improvements in life expectancy. Also improve the
mortality assumption for disabled retirees, and lower pre-retirement mortality.
7. Make slight changes to the rates of disability for active male state employees and all teachers.
8. Make no change to the retirement rates for state employees or teachers.
9. Make no change to the termination assumption for state employees. Slightly increase the termination rates for teachers.
10. No change to the percentage of members that are assumed to be married.
11. No change to the actuarial cost method or the method for calculating the actuarial value of assets.
12. No other changes are recommended for any of the other actuarial assumptions or any of the actuarial methods.

Based on past results (which don’t guarantee future returns!), even dropping to 7.5% seems too optimistic.
ADDENDUM: Ted Nesi has some thoughts from Governor Chafee on pensions.