Auditor General issues audit report of the
Employees’ Retirement System of the State of Rhode Island for the fiscal year ended June 30, 2023

STATE HOUSE – Net position of the Employees’ Retirement System of the State of Rhode Island (the System) increased by $832.7 million during fiscal 2023 to $12.4 billion at June 30, 2023. The increase was largely due to the significant positive investment returns experienced during the fiscal year.

The financial statements of the System for the fiscal year ended June 30, 2023, and the Independent Auditor’s Report thereon are included in the Annual Comprehensive Financial Report of the System. The audit and related communications were issued by Auditor General David A. Bergantino and released today by the Joint Committee on Legislative Services. The auditors concluded that the System’s financial statements present fairly, in all material respects, the fiduciary net position of the plans as of June 30, 2023, and the changes in fiduciary net position for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The audit encompassed (1) the seven defined benefit pension plans administered by the System – i.e., separate plans for state employees and teachers, the teachers’ survivors benefit program, two plans covering state police, two plans covering judges, and participating municipal employees, and (2) the defined contribution plan. The defined benefit plans covered more than 75,000 members (more than 40,000 of these members also participated in the defined contribution plan).

The time-weighted net rate of return, net of fees, during the fiscal year was 8.91% (compared to -1.40% during the prior fiscal year), and the net investment income of the pooled investment trust was $844.6 million (compared to net investment loss of $278.6 million during fiscal year 2022). The System reported total investment expenses of $127.9 million for fiscal 2023.

Benefits paid to retirees and beneficiaries from the defined benefit plans during fiscal 2023 totaled $1.0 billion, and distributions from the defined contribution plan totaled $46.2 million. Employee and employer contributions totaled more than $755.4 million to all the defined benefit plans. The contribution amount includes $122.5 million contributed for teachers by the State during fiscal 2023. Employee and employer contributions totaled $145.2 million to the defined contribution plan.

Amounts accumulated in the defined contribution plan totaled $1.7 billion at June 30, 2023. Most defined contribution plan assets (88%) are held in target date retirement fund investments.

The accounting measures of the net pension liability (GASB Statement No. 67) used for financial reporting differ from the measures used to determine actuarially determined contribution amounts for funding purposes.  Employers participating in the System’s plans report the net pension liability (asset), or their proportionate share, on their government-wide financial statements as required by GASB Statement No. 68 - Accounting and Financial Reporting for Pensions.

Each plan’s fiduciary net position as a percentage of the total pension liability, determined as of the June 30, 2023, measurement date, is detailed as follows:

The Teachers’ Survivors Benefit Plan and Judicial Retirement Benefit Trust have a net pension asset since plan net position exceeds the total pension liability.

The pension liability for all plans except the RI Judicial Retirement Fund Trust (RIJRFT) was determined using the System’s investment return assumption of 7%. The RIJRFT used a municipal bond index rate of 3.86%. These accounting measures of the net pension liability or asset differ from amounts included in actuarial valuations for determining annual required contributions.

The audit report also includes information on the net pension liability (asset) of the plans over time as well as the employer contributions made to each plan compared to actuarially determined amounts. 

In accordance with Government Auditing Standards, the Auditor General also issued the Independent Auditor’s Report on the System’s internal control over financial reporting and its compliance with certain provisions of laws, regulations, and contracts. The auditors reported a finding related to the defined contribution plan which is administered by an external entity and is not subject to the controls and processes in place for the defined benefit plans. The auditors recommended that the System enhance its oversight of the defined contribution plan and consider modifying the existing contribution and benefit system to also capture employee and employer contribution data for the defined contribution plan.

That report also included three management comments which include recommendations to enhance internal control or result in other operational efficiencies.

The Audit Summary, Report of Findings and Management Comments, and links to the System’s Annual Comprehensive Financial Report are available on the Office of the Auditor General’s website, http://www.oag.ri.gov/reports.html.