Reading the tea leaves in Bob Walsh’s RI pension reform op-ed

October 11th, 2011 at 6:00 am by 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)

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6 Responses to “Reading the tea leaves in Bob Walsh’s RI pension reform op-ed”

  1. Snow says:

    Ted, where did you get changing the retirement age from 62 to 67 for those 51 or younger? I haven’t seen that in anything I’ve read.

    I think your close reading is spot on, especially when you consider that the NEA can’t negotiate for retirees, so he puts it out there for the public and retiree groups to consider.

    1. Ted Nesi says:

      Thanks, Snow. The actuary’s plan that Deputy Treasurer Mark Dingley described on Friday would use the same retirement ages as Social Security does, and under Social Security the age for a full retirement benefit will be 67 for those born in 1960 or later:

      http://www.socialsecurity.gov/retire2/agereduction.htm

      Here’s my story from last week that mentions that and the other changes Raimondo and Chafee are considering:

      http://www.wpri.com/dpp/news/politics/state_politics/pension-bill-starting-point-outlined?4

  2. [...] = 'wpp-261'; var addthis_config = {"data_track_clickback":true};In his noteworthy op-ed that I wrote about earlier, NEA Rhode Island chief Bob Walsh mentioned two outside examples Rhode Island should look at while [...]

  3. Al Moncrief says:

    RAIMONDO AN “HONEST BROKER” MY HEINY . . . SHE SAYS NO EARNED BENEFIT WILL BE CUT EXCEPT FOR AN EARNED BENEFIT . . . .THE CONTRACTED COLA.

    RAIMONDO CANNOT GRASP THAT A PENSION COLA IS AS MUCH A CONTRACTED PENSION BENEFIT AS ANY OTHER PENSION PROVISION.
    Raimondo is terribly confused, for such an educated person she has a quite limited grasp of reality. Her stated intention is not to impact accrued pension benefits, then in the next breath she states that she intends to attempt to take accrued pension COLA benefits. I know that she has the intellectual capacity to understand that a COLA is an accrued benefit, that the COLA has the same force in law as any other pension provision. However, at some level she refuses to accept this.
    If Raimondo worked as a treasurer for an insurance company, and one of the products that was sold by the company was an annuity with a COLA, would she argue that the insurance company did not have a contractual obligation to pay the contracted COLA? Perhaps the company desires to use funds set aside for the COLA to construct a new headquarters building. Would Raimondo argue that it was acceptable for the insurance company to breach its contracts with customers who purchased annuities in order to divert funds to another purpose? Also, for an elected official to even consider theft of a contracted benefit from retirees with the hope that their theft may someday withstand court muster is immoral, and a sad commentary on the state of our nation. If you don’t like the terms of a contract, you should not become a party to that contract. This truth is apparent to nearly all Oxford graduates.
    Prospective, legal pension reform options are available. Visit the NCSL website to find a list. Raimondo has stated that she doesn’t want the legislature to have to revisit this issue in two or three years. That is exactly what will happen if the Legislature adopts prima facie unconstitutional pension reforms.

  4. [...] leaders, notably Chafee’s 2010 ally Bob Walsh of the teachers union NEA Rhode Island, have accused Chafee of breaking his promise to protect the [...]

  5. [...] Association Rhode Island’s Robert Walsh disputes that, and has argued on WPRI 12 and in The Providence Journal in recent weeks that Raimondo could have structured her proposal differently and still saved [...]