Where the $4.3 billion for RI’s pension fund will come from
January 7th, 2012 at 5:43 pm by Ted Nesi under Nesi's Notes, On the Main Site
Anchor Rising’s Justin Katz, who refuses to join in the general Raimondomania, posed two questions about the pension law that he’d like to hear the treasurer answer. I thought I’d take a crack at the first of them.
1. You mentioned that you began with a $7 to 9 billion unfunded liability and that your reform saved taxpayers about $4 billion. Where is the other $3 to 5 billion going to come from?
The Raimondo-Chafee law as enacted reduced the unfunded liability in Rhode Island’s state-run pension system from $7.303 billion to $4.286 billion, a reduction of $3.017 billion, according to Gabriel Roeder Smith & Co, the state’s actuaries.
As Justin notes, that still leaves a $4.286 billion shortfall in the pension fund. The law calls for that gap to be closed over the next 25 years with the money coming from three places: taxpayers (through the government’s annual deposits into the fund), active employees (through money withheld from their paychecks), and investment earnings.
As I’ve pointed out before, the law hardly lets taxpayers stop putting money into the pension fund – it just holds down how much they’ll put in. Even with the new law, taxpayers’ contribution for state workers’ and teachers’ pensions is still projected to double from $345 million in 2012-13 to $695 million in 2034-35, the last year a payment is due on the unfunded liability.
Justin’s second question is what happens if the pension fund doesn’t earn 7.5% a year on its investments, as the state assumes it will. That would mean we’ll face the same situation we did before the law passed: an (officially) unexpected shortfall in the pension fund that will have to be made up with higher contributions to the fund from taxpayers and a longer delay before the return of COLAs for pensioners.
Tags: anchor rising, pensions, raimondo-chafee, state budget, state government
Nesi's Notes covers politics and the economy in and around Rhode Island for WPRI.com. (Twitter: 
Given that the 7.5% return is no where close to reality for this state to maintain the shortfall is probably closer to $11 – $13 billion.
How about this for a question –
1 – The state goes ahead and cuts back as planned.
2 – 3 years down the road SCOTUS accepts the final appeals from one side or the other and the unions win.
Now we are in the hole for even more than when this started.
The only way to deal with this is to threaten massive layoffs so that they can have what they want and the tax payers don’t get killed.
The unions would agree to almost anything to keep from losing weekly dues from active members.
Where does the law call for that? Just from what you’ve said, it appears no more to resolve the issue than would have been a “reform” reading: “All of the various sources of income for this fund shall, within the next 25 years, equal the expenditures.”
Where does it lay out the process for resolving the shortfall?
I don’t have a copy of the law nearby, but that’s just pension math – it’s taxpayer deposits + employee deposits + investment returns. The General Assembly could always decide not to appropriate the money needed for the fund (as they did back in 1991-92) but if they stick to the path set forward here, that’s how it would work.
Right, but the employee deposits are a fixed percentage of their pay that (in theory) all go toward the “normal cost” of their own pensions. The unfunded liability appears LATER in the calculation, and there’s no adjustment to employee contributions on its basis.
As for investment returns, the reamortization loses about $2 billion of those earnings, so the taxpayer is on the hook for even more.
massive lay offs is the best solution but do we have anyone up there man or women to to this , NO WAY
YOU’VE BEEN BRAINWASHED AS OTHER TAXPAYERS HAVE BEEN.THEY NEED ONLY TO LAY OFF THE FAT SALARIED APPOINTEES OF THE GOVERNOR AND ELIMINATE THE FAT SALARY DO NOTHING POSITIONS. THEY ARE THE ONES GETTING BIG MONEY, HENCE BIG RETIREMENT PENSIONS. BECOME INFORMED AND THEN COMMENT.
The bad math and the complete lack of understanding of pensions continue. It is sad that leftist like me understands capitalism better than Justin.
I didn’t realize you were an accountant Pat. Are you?
“A treacherous friend in power, is the most dangerous of enemies… almost everything depends upon it; and that is, a thorough knowledge of the persons whom we trust. It is the duty of the public, at this time, to scruntinize closely into the conduct of their Committee Members, Members of Assembly, and Delegates to Congress; to know what they do, and their motives for doing so” (Thomas Paine, THE FORRESTER’S LETTER, III, April 22, 1776).
People in this state are going to find out sooner then later tha Gina’s koo-aid is not flavor she told us.
The pension overhaul bill was unfair and targeted the very heart and soul of our communities…the firemen, the policemen, the teachers, the nurses etc. the very ones that all Rhode Islanders have come to rely upon for essential services for the safety, education, and welfare of the young, the elderly, and all the families in Rhode Island. These are all taxpayers those who provide(ed) services and those who receive services. The bill pit the the general population against the pensioneers in a vicious way by leading them to believe that they were getting more moneyretired then when they worked. This is not true. They made it appear that they were freeloading on the backs of taxpayers. This also is not true. Most have worked 30 – 35 years contributing to that pension system. while the state milked it and the communities didn’t pay their share. The bill left out certain retirees. Not all are losing their cola. People, you have been hoodwinked.What happened here is exactly what could happen with social security, but I bet people would see it differently. This all was done in a hateful and vindictive way and you have your politicians to blame for this. They ought to be ashamed of themselves. You’ve been led to believe that your taxes won’t go up and the state’s financial woes will be resolved with this bill. All I can say is watch and see. This was all for political gain, no more no less.
Moreover, it is still underfunded. It relies on a 7.5% return, and the taxpayers still have to kick in. Where is the gain? Show me where they are going to get a 7.5% return because I want to invest too. Hoodwinked AND LIED TO AGAIN. TAXPAYERS, WON’T YOU EVER LEARN…YOU LISTEN TO PEOPLE LIKE RAIMONDO WITH HER SIDEKICK CHAFEE. THEN LET’S NOT FORGET YOUR REPRESENTATIVES THAT ARE SUPPOSED TO BE REPRESENTING YOU AT THE STATEHOUSE.GOOD OLE RHODE ISLAND!!! I REST MY CASE.
Like I said massive layoffs is the only answer.
Let me guess …. you’re on the receiving end of this gravy train ?
I still trying to figure why Gina left the Judges, and State troopers pensions alone. Those are the biggest pensions.
the sad fact is we only took a baby step in the endeavor to repair the broken system. RI will endure more punishment before we finally become insolvent.
9000 jobs lost since Aug. Who will be left to pay the bills ?
Quoting …”Justin’s second question is what happens if the pension fund doesn’t earn 7.5% a year on its investments, as the state assumes it will. That would mean we’ll face the same situation we did before the law passed: an (officially) unexpected shortfall in the pension fund that will have to be made up with higher contributions to the fund from taxpayers and a longer delay before the return of COLAs for pensioners.”
Or better yet ….. real $$$ reductions in retiree pensions (and in the accrued pensions of “actives”), not just the COLA freeze. The pensions they were promised were too rich from the get-go, promised by Politicians on the receiving end of Union campaign contributions and election support.
Taxpayers should pay no more for this collusion. REDUCE THE Pensions !