Sweeping pension plan promises big savings and big battle
October 18th, 2011 at 5:10 pm by Ted Nesi under Nesi's Notes
Raimondo and Licht brief reporters Tuesday
Rhode Island’s pension system will bear almost no resemblance to the one that’s existed for the past 75 years if lawmakers sign off on the sweeping proposal Governor Chafee and Treasurer Raimondo unveiled Tuesday.
No government worker or retiree in Rhode Island would escape the tidal wave of change. Cost-of-living adjustments (COLAs) wouldn’t be awarded for at least 12 years – and they’d never be guaranteed again. Workers would bear more risk for their own retirements with a new 401k-style account. The retirement age would go as high as 67. Cities and towns would no longer be able to hide the scale of their liabilities.
“With this pension [plan] we’re moving from the political to the actuarial,” Raimondo told reporters. “Never again do we want to be in place where politics dictates or has the opportunity to weaken our pension system.”
The aggressive 208-page plan is sure to run into a firestorm of opposition from organized labor. Every public-sector union will find something in the bill to disagree with, from state workers and teachers who won’t get their COLAs for perhaps two decades to local police and fire units whose locally run plans will be subject to tough new scrutiny from a board made up of Raimondo, the revenue director and the auditor general.
COLAs are sure to be a hot-button issue. Although Chafee and Raimondo added a trigger provision to provide some protection to lower income retirees – those whose pensions are less than $20,000 will get a COLA when the system reaches 70% funding, while everyone else waits until 80% – it’s pretty thin gruel considering they face at least a decade without an increase.
For taxpayers, the plan offers significant benefits, chopping next year’s pension contribution in half from $615 million to $353 million, which is actually less than this year’s deposit. Raimondo says if the bill passes the system’s funding level would immediately jump from 48% to 62%, with a taxpayer savings of $3.3 billion over the next 10 years, and the funding level would hit 100% in the year 2042.
“Today’s system is most fundamentally unfair to taxpayers and younger employees,” Raimondo said. With this plan, she said, “You’re offloading a tremendous amount of risk from the taxpayer to the employee.”
Governor Chafee won at least a partial victory by including a section of the bill that would crack down on underfunded locally run pension systems in cities like Providence and Cranston. The proposal would order cities to send the state plans for shoring up their funding – and would suspend COLAs if they don’t succeed.
“It is a top priority of the governor – and mine – to address these plans,” Raimondo said, alluding to the days of news reports saying they were far apart on whether to tackle the issue in the bill.
We’ll have much more tonight on our special edition of “Newsmakers” at 7:30 p.m. on WPRI 12 (and WPRI.com) with Treasurer Raimondo herself, and continuing coverage all week here on Nesi’s Notes.
Details of the plan are available at the General Assembly’s new website, PensionReformRI.com, and in our WPRI.com story. You can download the PDF of Raimondo’s two-page summary here.
And since the proposal largely tracks what we’d expected, you can read pre-release reactions from economists Dean Baker and Josh Barro.
(photo: Ted Nesi/WPRI)
Tags: gina raimondo, lincoln chafee, pensions, raimondo-chafee
Nesi's Notes covers politics and the economy in and around Rhode Island for WPRI.com. (Twitter: 
Thank you Treas Raimondo for ending the final pay wage fluffing (see the new definition of “Compensation” in the Bill.
The rank and file should also be happy this is being re-defined since it protects the integrity of the entire system for most employees who don’t spike their final wages for a bigger pension.
7 billion in debt, go after the politicians who spent it. put caps on salaries not colas that is there 4 a reason!!!! this country is not what it stands for anymore.
You’re absolutely right! And what about judges’ pensions? Are they paying taxes and taking a cut in their COLAS?
The GT says that current retirees will not get another COLA for 12-19 years. We can’t live today on what we made 12 years ago. How does she expect us to live for another 12-19 years with the escalating cost of living on what we’re making now. As a single retired teacher, I do not get social security or paid health care. These expenses are rapidly increasing every year. Will we all end up on welfare?
take away from peter to give to paul ( he must be pretty rich) does paul know what its like to live on $1,000 a month when gas, food constantly rises!!!
Why is it that we are only talking to people who are in the state retirement system. What about the taxpayer. We are individually paying 15% of our pays to a 401K system with no guarantee. Why are we being taxed to guarantee other peoples retirements when the investment is not guaranteed.
Why is the focus on the pensions and state spending on these pensions? Why aren’t we all examining ALL state spending? This is where the average citizen and all of you reporters should be looking. Did you know that for 30 years the state contributed NOTHING to the state pension system? Did you know that the Pension system was TOTALLY funded by state employees and investments of their money?
Gina Raimondo does not tell us this information. Many of we state employees who work in these offices and see what goes on, know where the waste of taxpayer money is. The problem is that both the media and politicians have done such a good smear job of both the state employees and unions, that everyone hates us and no one will listen.
Yes, now the state is having to cough up money to put into the pension system. But – what happens to your mortgage when you don’t pay it for 30 years? You either cough up the money or you lose your house. What you DON’T do, is to ask your bank to pay your house mortgage off and continue to let you live there. This is what Gina Raimondo and the Gov are asking of we state employees. We have already funded our own pension system for the first 30 years of its existence totally on our contributions, and thereafter funded it 75%, now we have to pay off the state’s debt, and the taxpayer’s debt that they have never paid. By the way, we also have to pay taxes, so we pay twice. Gina claims transparency, however, she is guilty of lying by omission. I have heard her speak several times, and its like watching a play over and over. She says nothing over and over. It will take twenty to thirty years for pension funds to run out, why not gradually change the system over time and stop yelling fire in the theater?
This is not an emergency, this is a clear case of voters putting the wrong people in charge of all the money. Clearly, monies saved through modification has not helped, because the state “forgets” to put the money they save through those modifications, back into the pension system.
STOP BORROWING OUR MONEY TO PAY OFF STATE DEBTS and you might just have what you need to cover pensions and a whole lot more. Stop hiring hundreds if not thousands of temporary workers who do not contribute to the pension system and only cost the state more money in the long run. Either hire them (so they can contribute) or fire them. Stop buying the best furniture from Cardi’s and other high end stores, and start shopping in our surplus warehouses. There is lots of wasted money, and it doesn’t start with the state pension contributions, but it ends there.
2012 is election year. Guess who won’t be getting taxpayer votes? Our state government has been penializing taxpayers for many years. Our state politicians have been spending our money for their own pet peeves. Not once do I see them putting the taxpayer first. State employees are taxpayers too!Every politician in office in Rhose Island must be removed and new faces with the attitude that the taxpayers have the final say must be voted in. Party line voting is done! Politicians with false promises should not run for office. We also must remove corporate america from government. If your paying attention, corporate (greed) america isn’t paying their fair share in taxes. The rich get richer and we pay for it. Pay attention taxpayers! Your votes are your tax dollars at work. The state pension system is the fault of bad government. Not state employees or the taxpayers. Political greed is what it’s called. My votes in the next election aren’t going to any incumbents, nor are they going to ‘professional’ politicians. If you plan to run for public office, Be honest, have a plan, stick to it, and do not, I repeat, do not B.S the taxpayers ! ! !
Ok could the GT explain on how she plans to make up for the COLAs that she is pushing for retirees not to get for 12 to 19 years when everything else will be going up. Now if she can balance no other taxes going upand everything staying the same then maybe it will fly.
If you do alway with this for 12 to 19 years then it will turn out just like the State income tax that was only supposed to be temporary.
We all had to WAIT 3 years to get something that we paid into we did what we were told and it is now failing on deaf ears were are being hit twice