Raimondo-Chafee set to freeze COLAs, put all in hybrid plan

September 16th, 2011 at 11:55 am by under Nesi's Notes

General Treasurer Gina Raimondo offered the most detailed preview yet on Friday of what her much-anticipated pension reform legislation will include, as she called on union leaders to drop their opposition to the plan.

In an interview on WPRI 12′s “Newsmakers,” Raimondo outlined the planks of the plan that’s taking shape – notably a suspension of cost-of-living adjustments (COLAs), a transition to a hybrid plan for active workers, and a reamortization of the state’s $7.3 billion unfunded pension liability - while emphasizing the details are still in flux.

“If you’ve worked for 20 years, you’ve earned X already, my view is, that’s yours – you’ve earned it,” Raimondo said. “It’s my intent to submit something that doesn’t touch anything that you’ve earned. But on a go-forward basis, things might have to change.”

The legislation Raimondo and Gov. Lincoln Chafee are drafting will be released during the first two weeks of October. Lawmakers are expected to return for their special session after Oct. 10. The treasurer said she thinks union opposition will be the biggest hurdle they face in crafting a solution she supports.

“The pension reform that I propose – that the governor and I propose – will be in everyone’s best interest,” Raimondo said. “People are worried about ‘What’s happening to my COLA?’ They should be worried about ‘Will I get a pension?’ So if the labor leadership and the labor folks want to just say, ‘No, no, no,’ they’re doing a huge disservice to their members and every person in the state of Rhode Island.”

Raimondo signaled a COLA freeze will be a key part of the plan, saying a suspension of the annual increases could reduce the unfunded liability by up to $1 billion, depending on whether the freeze is full or partial and if it continues for “a lengthy time.” That would be the most significant change for current retirees.

“If you’re a retiree earning $1,000 a month, it would be my intent to submit a proposal where you continue to earn $1,000 a month,” she said. “We might just come to you and say, for a while you’re not going to get a raise. … Every retiree I’ve talked to, and I’ve talked to hundreds at this point, has said: ‘I’m willing to do my part. That’s not so bad.’ ”

“The way the system is set up now, many retirees who are 65 and above are making more in retirement than they were when they were working,” the treasurer added, because they get both a state pension with a COLA and Social Security, which also has a COLA. About half the state’s teachers do not receive Social Security, unions say.

Raimondo provided fewer details about the structure of the new hybrid plan, which would combine a limited guaranteed annual pension with a 401k-style individual retirement account. “We’re still hashing out the details of what the hybrid plan would look like,” she said.

For workers vested in the pension system now – those on the job 10 years or more – the transition process would likely mirror the one used in the private sector. A veteran worker would receive the full pension benefit they’d earned up to that point, and then earn credit in the new hybrid plan for the remainder of their government service.

The third major plank expected in the Raimondo-Chafee proposal: reamortization, or stretching out the schedule for paying down the unfunded liability, which raises its long-term cost. The treasurer has criticized reamortization in the past as inadequate, but said Friday she can support it if it’s tied to other changes.

“What you have to do first is reduce your debt load, and then remortgaging might make sense,” she said, comparing the pension liability to a home mortgage. “We need a fundamental restructuring of the system to take that $7 to $9 billion … down to something more manageable that our little state can afford. And then if we do that, then I would be open to reamortizing.”

One policy Raimondo doesn’t support: raising the retirement age for state workers who are already eligible to retire, which she said could result in a rush to the exits before the new plan takes effect.

Raimondo specifically said the National Education Association’s Bob Walsh, who served on the pension advisory board she and Chafee appointed, should accept the changes. “The young teacher in Rhode Island today is paying almost 10% of her pay and in 30 years, there’ll be no pension for her,” she said.

“Look what happened in Central Falls,” the treasurer continued. “They dug their heels in, they opposed reform, and now we’re going to 70-year-old retirees and saying, ‘You’re not getting half of your pension check.’ That’s what’s at stake here. We can’t let that happen. So if you care about public employees, you’ll pass this reform.”

The full episode of “Newsmakers” will air at 10 a.m. Sunday on Fox Providence and is available to watch online.

• Related: What’s next for the pension fight after today’s court ruling (Sept. 13)

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17 Responses to “Raimondo-Chafee set to freeze COLAs, put all in hybrid plan”

  1. Paul says:

    A “freeze” in the cola is a change in the contract. An ILLEGAL change … sorry Ms.Raimondo.

    1. What does full/partial freeze/eliminate the COLA mean? Part of my monthly pension includes an accumulation of Cola benefits which I have heard the Treasurer wants to suspend/freeze that accumulation for the future. A pensioner could therefore lose 10%, 15% or more of their monthly benefit under that scenario.

      What exactly is she saying?

      1. Ted Nesi says:

        As I understand it, your pension would freeze at its current rate, including whatever COLAs have been added to it over the years. So if you retired with a base pension of $1,000, and COLAs have raised it to $1,500 over the years, it would be frozen at $1,500 for some period of time. But it wouldn’t go back down below $1,500 to take back already granted COLAs.

        Full/partial is a little unclear, but theoretically they don’t have to just stop granting the full COLA altogether – they could grant a smaller COLA for a period of time, grant a COLA to lower-income retirees, etc. But she did not offer details on that point.

        For what it’s worth, I’ve never heard it suggested that COLAs should be eliminated forever – only for a period of time until the pension plan gets to a certain level of funding (80% is the figure Raimondo’s office has thrown around; right now the fund is at 48%).

        Does that make sense?

      2. Thank you , Ted. That is helpful information since there are contrary rumors spreading and it has not been definitively explained.

        For many retirees freezing the Cola for a number of years will mean they will never see a Cola again before they pass on.

      3. Ted Nesi says:

        That’s definitely a fair point. The six funding-fix options presented by the state’s actuary Monday to the advisory group suggested COLA freezes of 5 years (in two of his options), 13 years (in one of his options), or no freeze at all (in three of his options). A lot depends on how much savings they seek to get from the COLA freeze versus reamortization, the switch to the hybrid plan, and the many smaller changes that are possible.

        Keep asking questions in comments and I will do my best to answer them. I realize this is all very nerve-wracking for people, so getting accurate information is important.

    2. Cosmo says:

      Bleat bleat bleat the usual crap from the union sheeple. Use your brain union boy, we can do the reform now or after all the money is gone. Do you want to wait until anyone with money or brains to make it leaves the state because you keep driving taxes up? That’s what happening now, so sooner or later you can count on fast food workers and illegal aliens to pay your pension. Good luck with that.

  2. The State asks the Court to dismiss the pension suit and when the State loses, it decides it will summarily dismiss the Court’s decision.

    Sounds like full employment for lawyers.

    Wonder who these lawyers will be to benefit in big numbers on behalf of the State?? Actually the taxpayers will be paying these lawyers as the State flounts the Court decision.

  3. Ken Houghton says:

    “Look what happened in Central Falls,” the treasurer continued. “We forced the city to pay excess interest rates because of default risk and then changed the law so that bondholders would be paid in full–voila, no default risk and money for nothing. Well, it has to come from somewhere, so we stole it and now we’re going to 70-year-old retirees and saying, ‘You’re not getting half of your pension check.’”

    There. Fixed.

  4. [...] leaders should approach pension reform. On Friday, Barro emailed his thoughts on the plan outlined by Treasurer Raimondo: Overall, the plan laid out by Treasurer Raimondo and Governor Chafee strikes me as a very good [...]

  5. anthony palana says:

    Ted with the proposed suspension of COLAS –would retirees get their expected January cola and then suspend the rate . This seems to be fairest since we went the whole year and should be entitled to the last Cola before suspension.

    1. Ted Nesi says:

      Anthony, that’s a good question and one Chafee and Raimondo (and then the General Assembly) would need to tackle address in their bill. It would be up to lawmakers to decide when these changes would take effect – it could happen as soon as the bill passes or months later.

      The details are still sketchy, but it’s likely the treasurer would argue for implementing the changes right away, which could mean no COLA in January – but again that’s only if they actually do a full suspension of the COLA.

      We won’t really know what they’re thinking until the legislation is released publicly during the first two weeks of October. In the meantime, it’s something to contact their offices about if you have an opinion:

      http://mis.cba.uri.edu/CBASurvey//TakeSurvey.aspx?SurveyID=92KH6o2

  6. Tom says:

    What happens to workers who are not vested? Will they only get a 401k and what happens to there prior pension contributions.

    1. Ted Nesi says:

      Tom, that’s a good question. It’s not clear to me what would happen to those workers who are already in state service but haven’t reached 10 years and become vested in the pension system. However, it’s possible they’d be treated in the same way as vested employees – that is, they’d get the full old defined-benefit pension amount equal to their service to that point (say, 3 years of accrued benefits) and then earn benefits going forward in the new hybrid system.

      But again, these details are still being worked out and that’s only informed speculation on my part.

  7. Lindaq401 says:

    so let me get this straight, we are now going to trust the state to invest our money into a 401K; after they’ve ruined the current pension system with their poor investment strategies; the state has operated under the guise of a bank or financial institution when it hired me as an employee and stated as stipulation of employment that in return for services rendered I would receive as part of my salary and mandatory contributions, a pension upon retirement. My job application is a negotiable instrument just like a bank note; was signed and notarized. This is 10th grade business economics.
    I understand that the State is in financial difficulty, however, what they are asking current employees and current retirees to do is the equivalent of your bank asking you to double your interest rate on your mortgage because they’ve lost money in the stock market. I’ve never liked that I had no choice but to contribute, and I think that if I have to contribute to a 401K going forward, then we should at least be given the option to OPT OUT.

  8. [...] the weekend, Baker emailed me his thoughts on the pension changes Treasurer Raimondo outlined last week on WPRI 12′s “Newsmakers”: This seems to me to be fairly harsh, especially to [...]

  9. [...] the pension deficit and stabilize our retirement system WITHOUT raising taxes.” Raimondo offered a broad outline of what her proposal will include during an appearance on WPRI 12′s “Newsmakers” [...]

  10. [...] close the pension deficit and stabilize our retirement system WITHOUT raising taxes.” Raimondo offered a broad outline of what her proposal will include during an appearance on WPRI 12′s “Newsmakers” earlier this [...]