Reading the tea leaves in Bob Walsh’s RI pension reform op-edOctober 11th, 2011 at 6:00 am by Ted Nesi under Nesi's Notes
National Education Association Rhode Island chief Bob Walsh’s Projo op-ed about labor’s stance on pension reform is the clearest sign yet that at least some union leaders think digging in their heels and resisting any changes isn’t the best strategy to take over the next few weeks.
After some throat-clearing about Ed Achorn and the death of newspapers, Walsh moves to the matter at hand, describing organized labor as “part of the solution” to the state’s pension funding problem. Let’s take a close look at the canny union chief’s words – which he admits don’t necessarily reflect what other labor leaders think – and what that may mean for pension reform (as well as a potential Chafee vs. Raimondo race in 2014).
First, there’s the legal picture – Walsh makes repeated reference to Judge Taft-Carter’s recent decision finding retirees and vested workers have a contractual right to their pensions, a reminder that labor can (and likely will) return to the courts regardless of what the General Assembly does.
But he also notes it’s not clear whether retirees are best served by “a legally defensible hard line of no change” as opposed to “an attempt to mitigate damages by advocating for the least egregious of the potential options.” That’s a polite way of saying retirees may want to get the best deal they can from lawmakers, even if it means giving up benefits to which they’re legally entitled, rather than put all their eggs in a basket of litigation.
So what is that “least egregious” option, in Walsh’s view? Switching retirees to the less generous cost-of-living adjustment (COLA) now offered to current workers, combined with a 25-year reamortization of the state’s unfunded pension liability. Doing that “solves a significant part of the pension dilemma,” he writes.
That depends on which part of the dilemma you’re examining, though. Walsh’s two changes would reduce the taxpayer contribution for state workers’ pensions in by 38% in 2012-13, from $177 million to $109 million, according to actuary Joe Newton’s projections. But it would only reduce the unfunded pension liability for them by 16%, from $2.1 billion to $1.8 billion. (Newton didn’t run the numbers for other groups of pensioners.)
Walsh’s proposal – which he describes as the “only equitable option” the pension advisory group examined – means a significant savings in the short term but not as much in the long term, and it doesn’t include the extended COLA suspension Governor Chafee and Treasurer Raimondo are strongly considering.
Walsh leaves the door open to another policy the two have floated – raising the retirement age. But while they’re looking at raising the required minimum age from 62 to as high as 67 for a worker who’s currently 51 or younger, Walsh wants to make that a voluntary choice which gets rewarded, saying it “should be accomplished through incentives, not disincentives, as some other states have done.”
Then there’s the other major proposal floated by Chafee and Raimondo – the creation of a new hybrid plan, combining a capped traditional defined-benefit pension with a 401k-style individual account.
After his umpteenth reminder that taxpayers are now spending less than 3% of workers’ salaries to pre-fund pensions, Walsh acknowledges that “the state bears the majority of the risk” under the current system when investments don’t grow as expected. Unions, he says, “are not inherently opposed to such a plan” as long as it is “fairly constructed” – and as long as joining it is a voluntary choice for non-vested workers. (He doesn’t say if vested workers should be asked to choose.) The question is how to define a “fair” hybrid plan.
And then there’s the politics.
It’s hard not to miss the very different treatment Raimondo and Chafee receive in the op-ed. Remember, Walsh’s NEARI not only endorsed Chafee last year but also played a pivotal role in getting him elected; Raimondo wouldn’t even fill out the NEA’s candidate questionnaire, and thus received no formal endorsement from the union.
But you’d never guess that from Walsh’s op-ed. Governor Chafee makes only a brief cameo in the piece, and it’s to get chastised for making “campaign commitments on protecting promised pensions” as a candidate that he now looks likely to break.
Raimondo, on the other hand, wins plenty of praise from Walsh – despite being the person most responsible for pushing pensions to the forefront of Rhode Island’s public debate this year. A few excerpts (emphasis mine):
General Treasurer Gina Raimondo, to her credit, has allayed some fears already by strongly stating that no earned benefits would be cut, and that the debate regarding retirees would focus on the COLA. She has also wisely shown more openness to reamortization as part of a comprehensive solution to the pension issue.
The general treasurer has also noted that those currently eligible to retire will still be able to do so, an important point to avoiding another “rush to the door” wave of retirements, which would further burden the pension system. We agree. …
Treasurer Raimondo correctly points out that even in the modified pension system, the state bears the majority of the risk. …
Finally, I believe that Raimondo has been an honest broker in this situation.
So Raimondo is “an honest broker” who, “to her credit,” “wisely” and “correctly” seeks solutions to the pension problem, while Chafee is a non-factor who breaks his promises – even though they’re crafting a single plan. Ouch. Which of those two would you expect the NEA to endorse if they compete for the governor’s office in 2014?
There certainly is daylight between Raimondo and Walsh. He later says it’s “probable that labor will disagree with many components of her proposed plan” - notice it’s her plan, not hers and Chafee’s - and adds he disagrees “that there is only one right answer to solving the pension problem,” arguing the treasurer “should be more open to the importance and the value of the legislative process in vetting new ideas.”
To summarize, Walsh (reluctantly) supports less generous benefits for current retirees, bigger pensions for those who retire after age 62, a 25-year reamortization, and a “fairly constructed” hybrid plan. That may not be exactly what the Raimondo-Chafee bill calls for, but it’s likely to bear a resemblance – further reason why it’s not crazy to think, as I suggested in May, this may be the year for a grand compromise on pensions in Rhode Island.
• Related: Raimondo aide offers details on ‘starting point’ for pension bill (Oct. 7)