Sweeping pension plan promises big savings and big battleOctober 18th, 2011 at 5:10 pm by Ted Nesi under Nesi's Notes
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.
(photo: Ted Nesi/WPRI)