Where the $4.3 billion for RI’s pension fund will come fromJanuary 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.