City actuary outlines pension and retiree-health funding plan, projects steady 2.5% budget growth

Joe Newton, the actuary that advises Warwick on its pension plans and retiree medical program, presented an update on the status of those programs and the city's 2026 budget estimates during a Finance Committee meeting.

Newton told the committee the city now manages four pension plans and a post-retirement health care (OPEB) program and that a funding strategy the council adopted two years ago establishes a 2.5% annual growth target for combined contributions. "This plan is moving you towards getting rid of those over time," Newton said, adding the approach pools contributions and directs leftover funding into an OPEB trust to mitigate risk.

Why it matters: Under the current strategy the city set an across-the-board contribution baseline of about $55.2 million for fiscal 2025 that grows at 2.5% to roughly $56.6 million for fiscal 2026, Newton said. Because much of the contribution pays for past unfunded liabilities, he said, the city's employer contribution would be much lower—about $15 million—if the plans were fully funded today.

Newton reviewed several plan metrics: the three open plans for municipal employees, police and fire are generally above an 80% funded ratio and trending upward; an older closed police/fire plan (Police Fire 1) is primarily retirees and remains at a low funded ratio and is being funded on a pay-as-you-go basis; and the retiree medical program, previously unfunded, is beginning to accumulate assets and was shown as about 1.3% funded in the most recent valuation.

Newton explained accounting and discount-rate effects that caused a large immediate reduction in the measured unfunded liability when OPEB funding began. He said: "Once the city is putting a funding plan in place that will begin to accumulate assets that should throw off investment earnings in the future and help us pay the benefits, it's a huge carrot given by the accounting world that we get to immediately use, say, a 6.9% return." A council member asked whether that could present a false picture; Newton replied it could if the city started the accounting but did not follow the funding plan.

Newton projected that, under the current assumptions (including a long-run investment return assumption of 6.9% and 2.5% annual contribution growth), the combined contribution share of payroll should gradually decline over time as payroll grows, easing annual budget pressure. He showed sensitivity runs that reduced the assumed return to 5.9%: the plan still produces substantial stability but would require returns below about 5% before the 2.5% constraint stops working for the next 15 years.

Council members asked clarifying questions about definitions (Newton said the payroll figure presented was the pensionable payroll used to set each plan's contribution), how retiree-to-active ratios affect the outlook (Newton said more retirees relative to actives reduces flexibility), and whether benefit changes or higher member contributions would alter the projections (Newton said such changes could accelerate reaching funding goals but were not modeled at that level of precision during the presentation).

Public comment and follow-up: Several council members and members of the public raised broader budget concerns and asked whether this presentation satisfied a separate city ordinance to produce a citywide financial audit. Michelle Comar, who identified herself as a Ward 1 taxpayer, asked whether this actuarial presentation fulfilled the ordinance's requirement for a big-picture audit; the city staff member present said the presentation covered pension and retiree-health actuarial results and not a full citywide audit.

What was not decided: Newton and the committee did not vote on new policy during the presentation. Newton recommended continuing to follow the funding strategy and noted the city has the option, as a council, to change contribution levels, benefit design for new hires, or member contributions in future collective bargaining to affect long-term outcomes.

Ending note: Newton said the city's position on pensions and retiree medical was stronger than several peers because a funding strategy is in place and funding has started for the OPEB trust. "It is a very strong position," he said, while cautioning there are no guarantees and the program creates a significant near-term budget burden to address past liabilities.