How the pension law’s automatic provisions mirror ObamacareDecember 4th, 2012 at 1:25 pm by Ted Nesi under Nesi's Notes, On the Main Site
A little-discussed part of last year’s landmark pension law was a section called the Rhode Island Pension Protection Act, which aimed to tackle the concerns highlighted by defined-benefit critics such as Josh Barro, and which won praise from Rhode Island AFL-CIO President George Nee.
The Pension Protection Act says the state Retirement Board or its actuary cannot “change actuarial methods for the sole purpose of achieving a more favorable funding or fiscal result” – as happened in 1990, when former House Speaker Joseph DeAngelis pressured the Retirement Board into raising its investment return forecast so lawmakers could balance the budget with a smaller pension contribution.
“Politics hasn’t been good for the pension fund,” Treasurer Raimondo said at a RIPEC forum in October 2011. “I can’t redo the past. I can make it better going forward. The bill we provide fundamentally restructures it. It puts self-correcting mechanisms into the plan.”
In an effort to prevent future lawmakers from allowing a funding gap to grow, the act says that if a pension plan’s funding level falls below 50.1% or declines for five years in a row the actuary must provide the Retirement Board with five to 10 options for getting it back on track. The General Assembly must choose one of them by June 30; if lawmakers don’t act, the default option will take effect automatically.
Here’s how Raimondo described the idea at a briefing for reporters the same month:
It is designed to … self-correct over time, and in essence remove many future pension decisions from the political process so that should there be a need in the future for changes, they will happen automatically. … We’re moving from the political to the actuarial. Never again do we want to be in a place where politics dictates or has the ability to weaken our pension system.
The theory behind the Pension Protection Act is similar to the one that led President Obama and Congress to include in the Affordable Care Act a new Independent Payment Advisory Board, a 15-member panel tasked with holding down Medicare costs, as Kaiser Health News explains:
Beginning with fiscal 2015, if Medicare is projected to grow too quickly, IPAB will make binding recommendations to reduce spending. Those recommendations will be sent to Capitol Hill at the beginning of the year, and if Congress doesn’t like them, it must pass alternative cuts – of the same size – by August. A supermajority of the Senate (at least two-thirds of those present) can also vote to amend the IPAB recommendations. If Congress fails to act, the secretary of health and human services is required to implement the cuts.
In both cases, the idea is to force elected officials’ hands by changing the political system’s default response from inaction to action when there’s a fiscal problem at hand. (Though it’s now the law, this approach is still controversial.) And this isn’t the only way the pension law is like Obamacare.
• Related: Barro: RI came closer than most but didn’t fix pension problem (Dec. 4)