Chart: RI’s pension shortfall, with and without the settlement

February 17th, 2014 at 9:41 am by under Nesi's Notes, On the Main Site

Rhode Island’s unfunded pension liability has taken a wild ride over the last few years. Take a look:

RI pension liability - 2009 to settlementIt started when Treasurer Gina Raimondo convinced the State Retirement Board to change the underlying assumptions used to estimate the liability – most notably by reducing the long-term forecast of its investment earnings from 8.25% a year to 7.5% a year, as well as by changing the mortality tables for retirees.

Those changes, approved in April 2011, raised the state’s unfunded pension liability (dated back to June 30, 2010) from $5.4 billion to $7.3 billion in one fell swoop. It also set in motion what could have become a major budget crisis for the state and its municipalities due to the higher contributions now required to close the gap.

That looming spike in taxpayer contributions was the driving factor that convinced lawmakers to vote in November 2011 to approve the sweeping pension overhaul largely designed by Raimondo and her staff, which reduced the unfunded liability below its level prior to the April 2011 Retirement Board vote.

As of June 2013, now that more of the impact of the 2007-09 market crash has been factored into the estimate, Rhode Island’s unfunded pension liability without Raimondo’s 2011 changes would have been $8.9 billion (or $1.65 billion more than it was when the General Assembly approved the overhaul). The adoption of those changes reduced the unfunded pension liability by 46%, to $4.8 billion.

Last week Raimondo, Governor Chafee and union leaders unveiled a proposed settlement that would end organized labor’s legal challenge to the 2011 pension law as well as other changes made in 2009 and 2010; in exchange, the state would sweeten benefits at a cost of $232 million to the unfunded liability, swelling the shortfall to $5.05 billion. Lawmakers will have to decide whether the benefits are worth that cost.

(The chart above does not include estimates of the comparatively small unfunded pension liabilities for state police and judges, because officials haven’t made those numbers available yet.)

• Related: Chart: Comparing Raimondo, Fung and Taveras on pensions (Feb. 18)

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13 Responses to “Chart: RI’s pension shortfall, with and without the settlement”

  1. Nelson R. says:

    Nice chart. How about including an ‘actual’ view with another colored bar reflecting the actual value/return on investment as we know the forecasted rate of returns have not been realized therefore the shortfall being much larger. Including another bar that uses an indexed rate of return would insightful.

  2. Rlewis says:

    Actually, the “forecasted rate of return” has been realized and exceeded over the last 30 years.

  3. Snow says:

    Love the charts, but it would be even better to show the funding in earlier years when the fund was 70% funded. 2009 is after the crash, so the fund is going to be especially low. Would you add a few bars?

  4. Snow says:

    It’s interesting to note all the manipulation by Raimondo, starting all this in the midst of the crash. Shock Doctrine 101.

  5. Snow says:

    These charts show you what a joke this settlement is.

  6. Me says:

    It would also be interested in seeing this chart with the true average life expectancy of teachers- not with the ones showing the average age of death near 90…

  7. Tradita says:

    I agree with poster “Me” above – let’s see the chart recalculated with a lower average life expectancy, and combine it with data calculating a longer reamortization period for the fund.

  8. [...] Related: Chart: RI’s pension shortfall, with and without the settlement (Feb. [...]

  9. raljr says:

    It is good to see people understanding exactly how Treasurer manipulated this situation. Pension funds are the new way to feed Wall Street, remember tech and housing bubbles. Her supporters are the same ones who benefited from previous bubbles. Bubbles = destruction of middle class – let the case go court. We need to know what the rules are regarding pension changes, not just for now but also in the future.

  10. [...] Related: Chart: RI’s pension shortfall, with and without the settlement (Feb. [...]

  11. George says:

    Do any of you realize that pension funds have always been managed by wall street. You just didn’t care because any shortfall fell on the taxpayers. Quite clearly the old system was broken and needs a major overhaul. Otherwise union negotiators would have never agreed to a settlement that only got 6% of the cuts back.
    We need to get out of defined benefit pensions and move into defined contribution. Workers deserve to know that the government is putting every dime owed to employees into the pensions. Residents need a clear cost of services. Under the current system politicians have at times under funded pensions because they were going to make that money up at a later time (well actually their successor would repay the pensions). Who has that worked out for us?

  12. [...] the settlement last week. They support keeping the 2011 law in place, in full, and think the roughly $232 million increase in the unfunded liability under the settlement is still too high a price to pay even if it means the end of the legal [...]

  13. [...] pension settlement, unveiled by state and union leaders on Feb. 14, would increase the state’s unfunded pension liability by about 5% by sweetening benefits for workers and retirees; in exchange, unions have agreed to drop legal [...]